Scenario 2 (3 points): Let\'s consider a country\'s market for solar panels. Con

Question

Scenario 2 (3 points): Let's consider a country's market for solar panels. Consider two different possible demand curves P) Price (8) Quantity Quantity 1. Which of the demand curves is more elastic? How can you tell? 2. For a given subsidy s on solar panels, will it increase sales of solar panels more if demand is D or if demand is D1? 3. Draw an arbitrary subsidy of size s on the graphs displayed above. Label the price paid by the How does the price consumers (Pe) and the price received by the sellers (P) on each graph. elasticity of demand affect the incidence of the subsidy?

Explanation / Answer

D1 is more elastic because it is more flatter than D.Which means small change in price will lead to large large consumption of solar panels. For a given subsidy on solar panels the sale of the solar panels will increase when the demand will be D1 ie when it is more elastic.

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