ECON.TODAY (COMPLETE)-TEXT ONLY
18th Edition
ISBN: 9780133882285
Author: Miller
Publisher: PEARSON
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Chapter 31, Problem 2P
To determine
(a)
Impact on market clearing price of pollution abatement equipment.
To determine
(b)
Payment made for pollution abatement equipment.
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The U.S. government provides subsidies for a variety of agricultural products. Suppose the demand for and supply of corn is as indicated in the accompanying graph. (is on the picture)
a. In the absence of government involvement in the market, the equilibrium price is _______________ per bushel, and the equilibrium quantity is ________billion bushels. (completed)
b. Suppose the government provides a $2 per unit subsidy for suppliers of corn. In the graph, shift one or both curves to show the effect of the subsidy. (graph)
c. As a result of the subsidy, consumers will pay___________ per bushel, and sellers will receive ________ per bushel. (completed)
Education benefits society as a whole. That is why, among other things, studies at colleges and universities are subsidized: Students pay for the semester ticket, while the state covers the cost of courses, among other things. Assume that the subsidy is paid as a fixed amount per student.4a) What is the form of market failure that economically justifies the education subsidy? Briefly justify your answer.4b) What is the effect of the subsidy and what are its welfare effects? Assume an optimally designed subsidy and give reasons for your answer.4c) Does it make a difference whether the subsidy is earmarked and paid directly to the students or to the respective university? Give reasons for your answer.
Price ($/lb)
Quantity Supplied (thousands of lbs per day)
Quantity Demanded (thousands of lbs per day)
1.5
8
14
2
9
13
2.5
10
12
3
11
11
3.5
12
10
4
13
9
Now, suppose that instead of a price ceiling, the government simply pays flour sellers a subsidy of $1/lb on flour sales. How much flour would be sold? How much would consumers now pay for flour? How much would producers be paid in total for each pound of flour sold? On a separate graph, depict the equilibrium from question 1, alongside the equilibrium with the subsidy. XXXX
Chapter 31 Solutions
ECON.TODAY (COMPLETE)-TEXT ONLY
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