Question

(1 point) The graph below shows the demand and supply for sweet potato pies. Suppose the government offers consumers a subsidy of $3.5 per pie. What is the new price of pies? How much do consumers pay per pie (accounting for the subsidy)? Do consumers gain or lose as a result of this subsidy? How much do consumers gain or lose as a result of this a result of thid Gain Lose Do producers gain or lose as a result of this subsidy? How much do producers gain or lose as a result of this subsidy? Do taxpayers gain or lose as a result of this subsidy? ? How much do taxpayers gain or lose as a result of this subsidy? Suppose you could eliminate the subsidy and take, directly from the losers, the amount or amounts you calculated above and then give, directly to the winners, the amount or amounts you calculated above. How much would you have left over to do some additiona good?

Answer 1

The price of a good is determined by the point at which the demand and supply curves intersect. Here, original price is $6.

When the government gives a subsidy of $3.5 per pie, the consumers have to pay $2.5 per pie.

Consumers gain as a result of a subsidy.

The gain which consumers get is the consumer surplus and it is $59.5.

Producers gain as a result of this subsidy.