Suppose the government of the island has decided to make tomatoes more affordable to consumers by imposing a fixed per unit subsidy. Thus, start with the original demand (Qd = 50 – 5P) and supply (Qs = 5P – 25) and analyze this new intervention, the subsidy. The subsidy works like this: tomato sellers receive a $4 refund from the government for each kilogram of tomatoes they sell to consumers. What is the price that the producers will effectively earn for their tomatoes, inclusive of the subsidy? How much will the government spend on tomato subsidies in this case in total? (Recall the units of measurement: P is the price in dollars per kilogram of tomatoes; and Q is the quantity of tomatoes, expressed in thousands of kilograms.) Produce a new graph depicting the new, post-subsidy equilibrium complete with (solved) values for the new price and quantity. Please include the original supply curve in this graph, in addition to the new “effective supply” curve; and clearly label the shift from the original supply curve to the new “effective supply” curve, graphically indicating the direction and magnitude of the shift. (Since the original supply is labeled as S1, please label the new “effective supply” as S2).
Suppose the government of the island has decided to make tomatoes more affordable to consumers by imposing a fixed per unit subsidy. Thus, start with the original demand (Qd = 50 – 5P) and supply (Qs = 5P – 25) and analyze this new intervention, the subsidy. The subsidy works like this: tomato sellers receive a $4 refund from the government for each kilogram of tomatoes they sell to consumers. What is the price that the producers will effectively earn for their tomatoes, inclusive of the subsidy? How much will the government spend on tomato subsidies in this case in total? (Recall the units of measurement: P is the price in dollars per kilogram of tomatoes; and Q is the quantity of tomatoes, expressed in thousands of kilograms.) Produce a new graph depicting the new, post-subsidy equilibrium complete with (solved) values for the new price and quantity. Please include the original supply curve in this graph, in addition to the new “effective supply” curve; and clearly label the shift from the original supply curve to the new “effective supply” curve, graphically indicating the direction and magnitude of the shift. (Since the original supply is labeled as S1, please label the new “effective supply” as S2).
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter4: Markets In Action
Section: Chapter Questions
Problem 14SQ
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Suppose the government of the island has decided to make tomatoes more affordable to consumers by imposing a fixed per unit subsidy.
Thus, start with the original demand (Qd = 50 – 5P) and supply (Qs = 5P – 25) and analyze this new intervention, the subsidy. The subsidy works like this: tomato sellers receive a $4 refund from the government for each kilogram of tomatoes they sell to consumers.
- What is the
price that the producers will effectively earn for their tomatoes, inclusive of the subsidy? - How much will the government spend on tomato subsidies in this case in total? (Recall the units of measurement: P is the price in dollars per kilogram of tomatoes; and Q is the quantity of tomatoes, expressed in thousands of kilograms.)
- Produce a new graph depicting the new, post-subsidy equilibrium complete with (solved) values for the new price and quantity. Please include the original supply curve in this graph, in addition to the new “effective supply” curve; and clearly label the shift from the original supply curve to the new “effective supply” curve, graphically indicating the direction and magnitude of the shift. (Since the original supply is labeled as S1, please label the new “effective supply” as S2).
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