The market demand for bicycle helmets is given by D(P) = 90−4P and the market supply ischaracterized by S(P) =P−10. In both expressions, P is the price per unit. The government introduces a per unit subsidy of S per helmet, that is paid out to the producer for each sale of helmets. (a) What is the equilibrium price and quantity before the government intervenes in the market? (b) What is the equilibrium price and quantity after the government intervenes in the marketimposing a per subsidy S >0? Hint: You have to find the equilibrium for all relevant levels of S. (c) Calculate changes in consumer surplus, producer surplus and welfare, as a function of subsidy S, due to the introduction of the subsidy. What welfare conclusion(s) do you draw? Illustrate graphically.
The market demand for bicycle helmets is given by D(P) = 90−4P and the market supply ischaracterized by S(P) =P−10. In both expressions, P is the
(a) What is the
(b) What is the equilibrium price and quantity after the government intervenes in the marketimposing a per subsidy S >0? Hint: You have to find the equilibrium for all relevant levels of S.
(c) Calculate changes in
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