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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Explain why subsidizing the purchase of good X could end up raising the price of good X.

To determine

The impact of subsidy on the price of a good.

Explanation

When a subsidy is given on good X, the demand for the good increases. In the short run, an increase in the demand is not met with an adequate increase in the supply. In this situation, the excess demand tends to increase the price of the commodity as more people are willing to purchase the commodity on subsidy...

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