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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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Microeconomics

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

If a subsidy is provided for the consumption of good X, and the subsidy is different for different units of good X (e.g., $40 subsidy on the first unit of good X and $32 on the second unit of good X, etc.), would the demand curve without a subsidy be parallel to the demand curve with a subsidy, as is the case in Exhibit 1? Explain your answer.

To determine

The impact of subsidy on the demand curve.

Explanation

Figure 1 shows the demand curves for good X.

The horizontal axis of Figure 1 measures the quantity of good X and the vertical axis measures the price. In figure 1, the initial demand curve without any subsidy is D1. When a subsidy of $1 is provided, the demand would increase and shift to D2...

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