Question

The government decides to subsidize the solar panels industry to encourage the adoption of solar panels and enhance its competitiveness. They decide to subsidize the producers by $8 for every unit of solar panel they produce. The demand and supply curves are Qd = 103 − 7P, Qs = 3P. As a result of the subsidy, buyers will pay $[Answer] less per unit. At the same time, the sellers will receive $[Answer] more per unit. Given the above information, we can conclude that at the original equilibrium, the supply is [more elastic/ less elastic/ equally elastic/ undetermined] compared to the demand.

(In decimal numbers, with two decimal places, please.)

Answer 1

The initial demand equation is Qd = 103-7P

The supply equation is Qs = 3P

Thus, initially, the equilibrium is:

Demand = SUpply

103 - 7P = 3P

10P = 103

P = 10.30

Q = 3*10.3 = 30.90

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The subsidy is $8 per unit

The new supply equation is Qs' = 3(P+8)

The new equilibrium is:

Demand = Supply

103-7P = 3(P+8)

103-7P = 3P +24

103-24 = 7P+3P

79=10P

P = 7.90

Q = 103-7P

=103-7*7.9

=47.70

Thus, as the result of subsidy, the buyer pays =$ 10.30 - $7.90 = $2.40 less per unit

The Seller receives = $7.90 + $80 = $15.90

Thus, the Seller receives $15.90-$10.30 = $5.60 more per unit

Since the Seller receives $5.60 more whereas the Buyer pays $2.40 less

This shows that at the original equilibrium, the supply is more elastic compared to the demand