O-LevelEconomicsThe allocation of resources2281/12 · May/June 2016 · Q151 Mark
By 2014, government subsidies for the Chinese steel industry led to 200 million tonnes of excess output. The diagrams show the market for Chinese steel. Which would represent the position after the subsidy but before the market adjusted?
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Adiagram showing an outward shift of the supply curve with demand unchanged, illustrating a new equilibrium and an initial surplus where the quantity supplied at the original price is greater than quantity demanded.
Bdiagram showing an outward shift of the demand curve with supply unchanged, illustrating a new equilibrium.
Cdiagram showing an outward shift of the supply curve (S₁ to S₂) with demand unchanged (D₁), where at the original equilibrium price (e.g. at 200 million tonnes quantity demanded from D₁), the quantity supplied from S₂ is 400 million tonnes, showing an excess supply of 200 million tonnes.
Ddiagram showing an inward shift of the supply curve with demand unchanged, illustrating a new equilibrium.
✓ Correct answer
C: diagram showing an outward shift of the supply curve (S₁ to S₂) with demand unchanged (D₁), where at the original equilibrium price (e.g. at 200 million tonnes quantity demanded from D₁), the quantity supplied from S₂ is 400 million tonnes, showing an excess supply of 200 million tonnes.
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