Suppose the demand and the supply for lumber (harvested wood processed in a sawmill) used for construction in Australia are given by QD =100 – 2P QS = 1/2P Assume also that the market is perfectly competitive. the government introduces a subsidy of s=5 per unit of lumber transacted in the market. Calculate the new equilibrium quantity and the price paid by consumers and received by producers. 9. Given the subsidy, calculate and illustrate in a graph the consumer surplus, producer surplus and subsidy expenditure. 10. Calculate the deadweight loss caused by the subsidy and illustrate it in a graph. 11. Who benefits more from the subsidy, consumers or producers? Why?
Suppose the demand and the supply for lumber (harvested wood processed in a sawmill) used for construction in Australia are given by QD =100 – 2P QS = 1/2P Assume also that the market is perfectly competitive. the government introduces a subsidy of s=5 per unit of lumber transacted in the market. Calculate the new equilibrium quantity and the price paid by consumers and received by producers. 9. Given the subsidy, calculate and illustrate in a graph the consumer surplus, producer surplus and subsidy expenditure. 10. Calculate the deadweight loss caused by the subsidy and illustrate it in a graph. 11. Who benefits more from the subsidy, consumers or producers? Why?
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 3.8P
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Suppose the
QD =100 – 2P
QS = 1/2P
Assume also that the market is
the government introduces a subsidy of s=5 per unit of lumber transacted in the market. Calculate the new
9. Given the subsidy, calculate and illustrate in a graph the
10. Calculate the
11. Who benefits more from the subsidy, consumers or producers? Why?
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