Asked Apr 6, 2019

if the governement would like to induce a consumer to consumer a specific level of some good.

which would be cheaper a cash system or a subsidy system and why 


Expert Answer

Step 1

Figure 1 illustrates the impact of subsidy to consumer and the money value of the subsidy.

Step 2

In Figure 1, X axis measures the specific goods. Y axis measures and Y axis measures the amount of money. The curve UG indicates the initial level of budget line. Now the consumer can purchase the specific goods OG amount.

Government decides to provide the 50% subsidy to the specific goods. Thus, the budget line shifted from UG to UH. Consumer can buy the specific goods OH amount by spending the same amount of money. Thus, consumer can purchase double the quantity of specific good with the same level of money spending on the goods.

With the new budget line consumer is in equilibrium at point E where the budget line is tangent with the indifference curv...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in



Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: In​ Brazil, the reference base period for the CPI is 2000.   By​ 2005, prices had risen by 51 perce...

A: The given information:Base period is 2000In 2005 price  increases by 51%Brazil inflation rate in 200...


Q: Let’s apply the general equilibrium set up to discuss the on-going trade war between the U.S. and Ch...

A: General equilibrium (GE) theory mainly focuses on determining the behavior of demand (D), supply (S)...


Q: Suppose that the dynamic aggregate demand curve in Swaziland is determined by the equation M + U-6%....

A: The quantity theory of money:The quantity theory of money equation can be written as follows:


Q: If the reserve ratio requirement is 7%, a $2000 deposit will increase the money supply by (roughly) ...

A: Increase in money supply:Increase in money supply can be calculated as follows:


Q: The Federal Reserve has direct control over A) the monetary base. B) M1. C) M2. D) checkable deposit...

A: The correct option is A.


Q: How does Trade and Development Report 2012 describe impact of globalization on income distribution?

A: Globalization is the phenomenon that describes inter-connectivity of countries connecting them in va...


Q: In the basic real business cycle model, where prices are fully flexible, shocks to the dynamic aggre...

A:  Real business cycle: Real business cycle refers to business cycle fluctuations to a large extent; t...


Q: I need help with principles of microeconomics chapter 10 problem 6 please help

A: We have been given the price and quantity schedule as follows:


Q: Cost and revenue The graph presents the short-run costs and revenue for a monopolistically competiti...

A: Monopolistically competitive market: Monopolistic market refers to the market structure in which the...