One way to show the effect of a subsidy in a supply-Demand graph is to treat it as a shift in the short-run supply curve.1 In the United States, for example, producers of ethanol get what amounts to a 54-cents-a-gallon tax credit. As shown in Figure 1, this shift the supply curve (which is the sum of ethanol producers’ marginal cost curves) downward by 54 cents. This leads to an expansion of demand from its presubsidy level of Q1 to Q2. The total cost of the subsidy then depends not only on its per-gallon amount but also on the extent of this increase in quantity demanded.