Question

The demand curve for a good is QD=24–4P, and its supply curve is QS=P+1. The market is in equilibrium, then the government provides a subsidy to producers of the good. The subsidy is represented as a new supply curve of QS=P+3. What is the dollar amount of the producer subsidy per unit

Answer 1

Dollar amount subsidy per unit for producer is $1.6

--- Original equilibrium = G. New equilibrium = 6 I lo= Equillibrury. Pri - price P+3 Qo = Original ust subsidy equilibrum I eque Q = new equilibriure - .-. - - - .. . F 9 - 3 After providing producer subsidy supply curve shift parallely downward that increases Quantity and decreasing price level Intention of government to pass subsidy to consumer by this action price fall be from Po to Pi : Gain to consumer Pop, lunit whole gain to consumer PEEP, Gain to producer P2 - Po & total gain to producer PREFPO. Price at equilibrium point q = 24-up = Pot! 23 = Spo - Po= 23 = 84.6 Quantity at equilibrium point a= 28= 5.6 units - Qt

Price at new equilibrium au-up = P + 3 21 - SP P = $4.2 Quantity at new equilibrium Qo - 24-464.2) = 7.2 units Area (P2 EF Po) e Qe (New P,- Po) = On ® (Ps - Pa) P2 at Or 7.2 = P2 = Pzt 1 $6.2 Area (P. EF P.) = = = 7. 28 (6.2-4.6) 7.2 * 1.6 $11.52 I dollor amount subsidy per unit = Total gain. 72 = $1.6 / unit