What does the value of a subsidy represent?

The value of a subsidy represents the vertical distance between two supply curves because it effectively reduces the costs of production for suppliers. When a subsidy is provided by the government, it lowers the marginal cost for producers, allowing them to supply more at every price level. This shift is depicted graphically as a rightward shift of the supply curve, creating a new supply curve that is positioned lower than the original one by the amount of the subsidy.

In this context, the vertical distance between the original supply curve and the new supply curve indicates the subsidy amount received per unit of output. This is crucial for understanding how subsidies influence market behavior, prices, and quantities supplied, as they can encourage increased production and potentially lower prices for consumers.

The other options do not accurately reflect the nature of a subsidy. The distance between two demand curves relates more to changes in consumer demand rather than production costs. The difference in production costs is part of the impact of the subsidy but does not represent the subsidy itself. Lastly, price elasticity of demand refers to how responsive the quantity demanded is to a change in price, which is not directly tied to the definition or impact of a subsidy.