Maximum and minimum prices — practice question

The diagram illustrates the impact of the government’s introduction of a subsidy for a product. What effects does the subsidy have on government spending and consumer spending?

• Agovernment spending increases by US$240 million; consumer spending decreases by US$40 million
• Bgovernment spending increases by US$240 million; consumer spending decreases by US$200 million
• Cgovernment spending increases by US$480 million; consumer spending decreases by US$40 million
• Dgovernment spending increases by US$480 million; consumer spending decreases by US$200 million