Governments can use subsidies to increase demand

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Governments can use subsidies to increase demand. For instance, a government can pay farmers to use organic fertilizers rather than traditional fertilizers. That subsidy increases the demand for organic fertilizer. Consider two industries, one in which supply is nearly vertical and the other in which supply is nearly horizontal. Assume that firms in both industries would prefer a higher market equilibrium price because a higher market equilibrium price would mean higher profits.

Which industry would probably spend more resources lobbying the government to increase the demand for its output? (Assume that both industries have similarly sloped demand curves.)

A. The industry with a nearly vertical supply curve

B. The industry with a nearly flat supply curve.

Reference no: EM131090381

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