(c) Subsidies lead to overproduction and overconsumption relative to thecompetitive equilibrium. What is the deadweight loss associated with this? Why is there a deadweight loss? Depict this in your original figure from (a), or drawa new figure.
Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education.
(a) Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2) the marginal private benefit is equal to the marginal social benefit; 3) the marginal private cost is equal to the marginal
(b) Identify the area of the figure you drew in (a) that depicts the total size of the subsidy paid by the government to the students enrolled in tertiary education in Gondolin. Who gains and who loses from such a subsidy?
(c) Subsidies lead to overproduction and overconsumption relative to thecompetitive equilibrium. What is the
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