The next 5 questions involve the above diagram , which depicts a S ubsidy of $10
ID: 1103996 • Letter: T
Question
The next 5 questions involve the above diagram, which depicts a Subsidy of $10 per unit.
Please show all work
1. What is the initial market price and quantity, before the subsidy is enacted?
(A) p = 40, q = 30 (B) p = 40, q = 40 (C) p = 35, q = 40 (D) p = 10, q = 20
2. What is the market price and quantity, with the subsidy enacted?
(A) p = 40, q = 30 (B) p = 40, q = 40 (C) p = 35, q = 20 (D) p = 10, q = 20
3. By how much does Consumer Surplus increase under the subsidy?
(A) $150 (B) $450 (C) $250 (D) $350
4. How much does the subsidy cost taxpayers?
(A) $400 (B) $200 (C) $300 (D) $1,000
5. What is the initial Producer Surplus, before the subsidy is enacted?
(A) $400 (B) $600 (C) $900 (D) None of the above
Figure 2: A Subsidy SUPPLY SUPPLY (With subsidy) 70 40 DEMAND 10 30 40 QuantityExplanation / Answer
1) answer (A)
2)answer is (B) market price still remains 40 quantity increases to 40.
3)new CS under subsidy= 1/2*(40-30)*(70-40)=1/2*(10)*(30)=150
option (A)
4) option (A) total tax to tax payer is $10*(40)=$400
5)PS=1/2*(40-10)*30=450. option (D)
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