This chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the governm

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This Chapter Analyzed The Welfare Effects Of A Tax On A Good Consider Now The Opposite Policy Suppose That The Governm 1 (28.95 KiB) Viewed 13 times

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This chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the government subsidizes a good. For each unit of the good sold, the government pays $2 to the buyer. Use the black point (plus symbol) to indicate the initial equilibrium in this market before the subsidy. Then use the green point (triangle symbol) to shade the area representing consumer surplus, and use the purple point (diamond symbol) to shade the area representing producer surplus, Price (Dollars) 10 9 B 7 6 Demand Before Subsidy Supply Equilibrium A Consumer Surplus Producer Surplus
Price (Dollars) 10 8 7 5 4 3 لیا 2 1 0 O Demand 1 2 3 Before Subsidy 4 5 6 Quantity (Units) 7 00 8 Supply 9 10 Equilibrium A Consumer Surplus Producer Surplus
On the following graph, use the tan segment (dash symbols) to indicate the wedge formed between the price received by producers and the price consumers pay out of their own pocket. (Hint: Find the quantity to the right of the initial equilibrium where the difference between the supply and demand curves is $2.) Next use the black point (plus symbol) to indicate the price producers receive at that quantity, and use the grey point (star symbol) to indicate the price consumers pay not including the subsidy. Then use the green triangle (triangle symbols) to indicate consumer surplus in the presence of this subsidy, and the purple triangle (diamond symbols) to indicate producer surplus. Price (Dollars) 10 9 B 7 3 Demand After Subsidy Supply 90 Subsidy Wedge ++ Price Producers Receive Price Consumers Pay
Price (Dollars) 10 9 B 7 3 N 1 0 Demand 0 1 2 3 After Subsidy 4 5 6 Quantity (Units) 8 Supply 9 10 Subsidy Wedge + Price Producers Receive Price Consumers Pay Consumer Surplus Producer Surplus