PROBLEM (5) The government introduces a subsidy s = $30 per unit of the good sold and bought in a market with demand QD = 240 - p and supply Qs = 2p - 60, respectively. Draw the graph to help you answer the following questions; (a) After the subsidy is implemented, what price do the buyers pay and what price do the sellers receive? (b) Calculate the consumer surplus CS and producer surplus PS after the subsidy? What is the cost to the government of this subsidy program? What is the DWL (deadweight loss) associated with the subsidy policy? (c) How much does it cost to the government in terms of total subsidy expenditure, to bring the quantity bought and sold in this market to 200 units?
PROBLEM (5) The government introduces a subsidy s = $30 per unit of the good sold and bought in a market with demand QD = 240 - p and supply Qs = 2p - 60, respectively. Draw the graph to help you answer the following questions; (a) After the subsidy is implemented, what price do the buyers pay and what price do the sellers receive? (b) Calculate the consumer surplus CS and producer surplus PS after the subsidy? What is the cost to the government of this subsidy program? What is the DWL (deadweight loss) associated with the subsidy policy? (c) How much does it cost to the government in terms of total subsidy expenditure, to bring the quantity bought and sold in this market to 200 units?
Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter8: Application: The Costs Of Taxation
Section: Chapter Questions
Problem 10PA
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Transcribed Image Text:PROBLEM (5) The government introduces a subsidy s = $30 per unit of the good sold and bought in a market
with demand QD = 240 - p and supply Qs = 2p - 60, respectively. Draw the graph to help you answer the following
questions;
%3D
%3D
(a) After the subsidy is implemented, what price do the buyers pay and what price do the sellers receive?
(b) Calculate the consumer surplus CS and producer surplus PS after the subsidy? What is the cost to the
of this subsidy program? What is the DWL (deadweight loss) associated with the subsidy policy?
government
(c) How much does it cost to the government in terms of total subsidy expenditure, to bring the quantity bought and
sold in this market to 200 units?
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