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Why is subsidy used to correct market failure
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Solved in 2 steps
- Based on the diagram below, if a $60 per-unit subsidy were implemented in this market, what would the effective price received by producers become? Enter your answer in whole dollars.Why might government intervention make things worse than what generally happens in an unfettered market?What is the term used to describe the situation where resources are allocated in a way that maximizes total surplus? A. Pareto efficiency B. Market equilibrium C. Social welfare D. Deadweight loss
- Suppose a government imposes a quota on the sale of an agricultural commodity in an attempt to boost the welfare of producers. Will this policy be successful?please plot a graph showing the effect of a government subsidy on the market for surgical masks.Describe THREE (3) changes that could have the same effect on market supply of gasoline as the imposition of the subsidy .
- Read the following scenario. Corn is a very valuable product for which the U.S. government routinely offers subsidies. With no price support, the equilibrium price for corn is $300 per ton and the equilibrium quantity is 500 million tons per year. Suppose that the government agrees to pay farmers $350 for every ton of corn they produce and can't sell in the market. According to the farmer's market supply curve, 600 million tons per year is supplied at the price of $350 a ton, so production should increase to this amount. However, domestic users of corn cut back their purchases. Only 450 million tons a year is demanded at the price of $350 a ton, and purchases decrease to this amount. Farmers continue to produce 500 million tons of corn per year, so because they produce a greater quantity of corn than domestic buyers are willing to purchase, something must be done with the surplus. To make the price support work, the government decides to buy the surplus. Step 2 Use the scenario to…When the prices of necessities such as gas and bottled water rise as a result of a natural disaster, it is efficient for the government to impose price controls to keep suppliers from price gouging consumers.For the subsidy in the last question ($1000 per month), what are: (a) the change in consumer surplus; (b) the change in producer surplus; (c) the government cost of the subsidy; and (d) the deadweight loss.