Question

In: Economics

"Refer to the Figure. If the government offers a $20 subsidy on the production of this...

"Refer to the Figure. If the government offers a $20 subsidy on the production of this good, what will be the new consumer surplus?"

(The blue S refers to the upward sloping blue line)

Solutions

Expert Solution

Lets formulate the problem first as the graph is missing in question.

Suppose in the Competitive market , the demand and supply curves initially determine the Equilibrium Point E where Equilibrium quantity is 30 units and Equilibrium price =$70.

Have a look at the graph------

The Consumer surplus is the shaded area ABE

CS is the difference between the price which the buyers are willing to pay and what they actually pay

Now if the govt provides subsidy ,the supply curve will shift rightward as the priducers are able to earn more.

The new supply curve S' intersects demand curve at point E',

New equlibrium Quantity = 35 units

New equlibrium price =$ 60

Consumers surplus will increase now

See graph------

The shaded area ADE' represents Consumers surplus and it is larger than the earlier.

Thanks...


Related Solutions

A government subsidy on ethanol production will shift: A.) demand to the right B. Demand to...
A government subsidy on ethanol production will shift: A.) demand to the right B. Demand to the left C). Supply to the right D). supply to the left An increase in the price of a good causes a: A). rightward shift in the supply curve B). movement up the supply curve C). movement down the supply curve D). leftward shift in the supply curve An increase in the technology of producing a good will: A). shift supply to the left...
Production subsidy vs. tariff A country is considering a tariff or a production subsidy to protect...
Production subsidy vs. tariff A country is considering a tariff or a production subsidy to protect a domestic industry from imports. a) Assuming the production subsidy is the same % as the tariff, which policy is preferable if we consider only the dead-weight loss? Draw graphs that support the argument. b) If the policy-maker’s only concern is redistributing gains from trade (not an infant industry argument), identify one other policy she could pursue? In 1 or 2 sentences explain how...
The government has decided to add a $10 subsidy in the market for Humbugs. The pre-subsidy...
The government has decided to add a $10 subsidy in the market for Humbugs. The pre-subsidy price of Humbugs was $50, and neither supply nor demand is perfectly elastic nor perfectly inelastic. 1. Which of the following is true? A The price of Humbugs will fall to $40. B The full benefit from the subsidy will go to buyers of Humbugs. C The price of Humbugs will fall by less than $10. D The equilibrium quantity of Humbugs will decrease...
Suppose the government is considering implementing a child care subsidy for low-income single-mother households. This subsidy...
Suppose the government is considering implementing a child care subsidy for low-income single-mother households. This subsidy would provide low-income single mothers $5 per hour worked to spend on child care (and only child care). a. Is this child care subsidy equivalent to a wage subsidy to low-income single-mother households? Explain. (Note: assume that all low-income single-mothers use formal child care in order to work.) b. Why might the government want to regulate the quality of child care? What problems might...
How much will the Government spend on the subsidy? What will be the change in producer...
How much will the Government spend on the subsidy? What will be the change in producer surplus? if the demand is P = 585 – 2Q   & supply is P = 25 + 2Q, what is the      equilibrium price and quantity in this market?     Q=140   P=305 To enable more citizens to buy more gasoline, the Government decides to give gasoline producers a subsidy of $12 per unit– Using the supply and demand equations from #2 (above). What price will consumer’s...
The Commonwealth government decides to provide a subsidy of 30 for the buyers of bikes. Assume...
The Commonwealth government decides to provide a subsidy of 30 for the buyers of bikes. Assume that the market demand for bikes is given by: p = 300 – 2Q. Assume that the supply curve for bikes is given by p = 30 + Q. Which of the following statements is true? a. Following the imposition of the subsidy the total price paid to sellers including the subsidy decreases by 10 and the deadweight loss that results from the subsidy...
A small open government-less economy’s only production is from a spring that offers particularly tasty and...
A small open government-less economy’s only production is from a spring that offers particularly tasty and nutritious water. It produces a dependable $100,000 worth of water each year (that can be consumed or exported). In the past, the country has amassed $500,000 worth of foreign bonds that dependably pay 5%/yr ($25,000/yr) and will do so indefinitely. (Such bonds that never mature and are scheduled to keep paying forever are called “consuls”.) If the country decided now to simply consume its...
​Refer the figure above. Which of the following statement is true?
Refer the figure above. Which of the following statement is true? if the nominal interest rate is 105 and the inflation rate is 45, the market for loanable funds will be in equilibrium.When the domestic real interest rate is 6%, the current account will be balanced The equilibrium nominal interest rate is 6%.The inflation rate is necessarily 0%, since the nominal and real interest rates are identical in equilibrium
Provide a comparison of production subsidy, a tariff, and a quota using a graph of each...
Provide a comparison of production subsidy, a tariff, and a quota using a graph of each in your explanation.
During the early months of the COVID-19 pandemic, the government introduces a wage subsidy plan: a...
During the early months of the COVID-19 pandemic, the government introduces a wage subsidy plan: a per-unit subsidy. Suppose that the pre-pandemic demand for labour was D0=1400-50w, supply was S=50w-200. There were L0 workers employed at a wage of w0 dollars per hour. Suddenly, the demand for labour declined to D1=700-50w. Without a subsidy, employment would fall to L1, The goal of the per-unit subsidy is to avoid layoffs, L=L0, even though D1=700-50w. Calculate the per-unit subsidy to achieve this...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT