Question

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1. 

   Figure 2: A Subsidy Price SUPPLY SUPPLY (With subsidy) DEMAND 42 50 Quantity 19. What is the initial market price and quantity, before the subsidy is enacted? (A) p* = 50, q* = 42 (B) p* = 40, q* = 42 (C) p* = 40, q* = 50 (D) p* = 50, q* = 50 20. What is the market price and quantity, with the subsidy enacted? (A) p* = 50, q* = 42 (B) p* = 40, q* = 42 (C) p* = 40, q* = 50 (D) p* = 50, q* = 50

   Figure 2: A SubsidyQuantityPrice42504050DEMANDSUPPLYSUPPLY100(With subsidy)1019.What is the initial market price and quantity, before the subsidy is enacted?(A)p∗= 50,q∗= 42(B)p∗= 40,q∗= 42(C)p∗= 40,q∗= 50(D)p∗= 50,q∗= 5020.What is the market price and quantity, with the subsidy enacted?(A)p∗= 50,q∗= 42(B)p∗= 40,q∗= 42(C)p∗= 40,q∗= 50(D)p∗= 50,q∗= 507

Answer 1

19) when the initial supply and demand curve intersects the market is at the private equilibrium level

p =50 and q = 42

option(A)

20) When the supply shifts with the subsidy, the market will be at the equilibrium at the socially optimal level

p = 40 and q = 50

option(C)