Please answer the following questions about subsidies and supply. a..Petrol remains affordable because it is subsidized by the government....

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The brief answer to this question is that a government subsidy would increase the supply of petrol.  This would cause the supply curve for petrol to move to the right (or downward, depending on how you think of it).  When this happens, a new equilibrium is reached. The new equilibrium is at a lower...

, we request that you only ask one question per post.  I will answer the first of these three questions.

The brief answer to this question is that a government subsidy would increase the supply of petrol.  This would cause the supply curve for petrol to move to the right (or downward, depending on how you think of it).  When this happens, a new equilibrium is reached. The new equilibrium is at a lower price and a higher quantity.  This means that a subsidy causes the domestic price to drop and it causes more petrol to be bought and sold.

When the government subsidizes a commodity, it typically pays the producer a certain amount for every unit of the commodity that the producer makes and sells.  This, in effect, lowers the producer’s cost of making the product. When the producer is able to make things at a lower cost, they will naturally be willing and able to make more of those things.  This means that the supply will rise.  When the supply rises, the amount of the good that is supplies increases at every price level. This means that the entire curve moves to the right (remember that the supply curve has a negative slope). When the curve moves to the right, a new equilibrium is reached at a lower price and higher quantity.

Please follow the link below for an interactive graph that shows you how an increase in supply affects the equilibrium price and quantity of a good.