Macroeconomics 20th Edition by Campbell McConnell,Stanley Brue,Sean Flynn

Exercise 34

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
a. The industry with a nearly flat supply curve.
b. The industry with a nearly vertical supply curve.