As with taxes the total subsidy per unit is the
vertical distance between the supply curves, but since it has the effect of
lowering costs of production the subsidy will shift supply to the right to S +
subsidy. This has the
effect of increasing output to Q2 and lowering the price to Pc.
The cost taxpayers (paid by the government) is equal to the total
subsidy per unit (ab) multiplied by the quantity of the good consumed (Q2)
this gives the shaded area PcPfab.
