The market for an agricultural product is modelled by the following Demand and Supply Curves: Demand: Q D = 8 0 0 – 30 P Supply:

Supply: Q S = 20 P – 100

Where Q is Quantity measured in tons, and P is the Price in $ per ton.

The Government decides to provide producers with a subsidy of $4 per ton.

The competitive model predicts that, as a result of the subsidy, the equilibrium marke t price will fall by:

A. $0.80 per ton

B. $1.20 per ton

C. $1.60 per ton

D. $8.00 per ton  

Explain your answer.