1. With a subsidy there is a difference between what the producer receives, the new producer price, and the consumer pri

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1 With A Subsidy There Is A Difference Between What The Producer Receives The New Producer Price And The Consumer Pri 1 (44.02 KiB) Viewed 33 times

1. With a subsidy there is a difference between what the producer receives, the new producer price, and the consumer price. Such a system can be defined by three equations: Qs = Q(Psub) Supply, a function of the subsidized price Qp = Q(Pm) Demand, a function of the market price, and P = Psub - V Market equilibrium The market price, Pm, minus the subsidy, V, is equal to the subsidized producer price, Pub Gardner shows that using elasticities of supply (p=0.3) and demand (n=-1.4) we can calculate the change in do production: = 0.247, and the change in market price: = -0.176. dP dv dV Psub Pe Pm market price 1. Quantity What can you say about this proposed subsidy? Specifically who gets most of it and why? 2. What can you say about the efficient use of resources due to the subsidy if a. there is no existing externality in the market, and b. there is a positive externality that the subsidy is designed to correct?