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In: Economics

The market for a product has the following inverse demand and supply functions Pd = 170...

The market for a product has the following inverse demand and supply functions

Pd = 170 - Qd

Ps    = 20 + 0.5Qs

  1. Find the competitive equilibrium and show on a diagram.
  2. Find the consumer surplus and producer surplus.
  3. Suppose the government gives a per-unit subsidy of $15 to sellers on each unit sold. Find the new equilibrium (quantity traded, consumer and seller prices). Show on your diagram.
  4. What is the incidence of the subsidy on consumers and what on suppliers? How can you explain the incidence of the subsidy on consumers and sellers?
  5. How much does the government spend on the subsidy? Who gets what?
  6. Find the new consumer and producer surplus. Is there a deadweight loss? If so find it.

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Expert Solution

Rahul Sunny answered 8 months ago
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