A subsidy is the opposite of a tax. With a €0.50 tax on the buyers of ice cream cornets, the government collects €0.50 for each cornet purchased; with a €0.50 subsidy for the buyers of ice cream cornets, the government pays buyers €0.50 for each cornet purchased. a. Show the effect of a €0.50 per cornet subsidy on the demand curve for ice cream cornets, the effective price paid by consumers, the effective price received by sellers and the quantity of cornets sold. b. Do consumers gain or lose from this policy? Do pro- ducers gain or lose? Does the government gain or lose?
A subsidy is the opposite of a tax. With a €0.50 tax on the buyers of ice cream cornets, the government collects €0.50 for each cornet purchased; with a €0.50 subsidy for the buyers of ice cream cornets, the government pays buyers €0.50 for each cornet purchased. a. Show the effect of a €0.50 per cornet subsidy on the demand curve for ice cream cornets, the effective price paid by consumers, the effective price received by sellers and the quantity of cornets sold. b. Do consumers gain or lose from this policy? Do pro- ducers gain or lose? Does the government gain or lose?
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
Section: Chapter Questions
Problem 10PA
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