This Chapter Analyzed The Welfare Effects Of A Tax On A Good Consider Now The Opposite Policy Suppose That The Governm 1 (30.44 KiB) Viewed 37 times
This Chapter Analyzed The Welfare Effects Of A Tax On A Good Consider Now The Opposite Policy Suppose That The Governm 2 (24.24 KiB) Viewed 37 times
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. The grey area on the following graph represents the additional consumer and producer surplus that is achieved with the subsidy versus without it. However, this additional surplus comes at the price of the government spending money on the subsidy. Use the green rectangle (triangle symbols) to indicate the area that represents the government expenditure on this subsidy. ? ollars). 10 9 B 7 in Demand I Shuplus Gon After Subsidy Supply Government Expenditure Deadweight Loss
Price (Dollars) B 7 3 2 1 O D Demand 1 Surplus Gain 2 3 4 6 Quantity (Units) 7 Supply Government Expenditure Deadweight Loss The difference between the surplus gained and the government expenditures on the subsidy represents the deadweight loss from this policy. Use the black triangle (plus symbols) to shade the area representing the deadweight loss from the $2 subsidy.
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