Assumes Qd = 1000 – 10P Qs = 10P
If a 20$ subsidy is placed on the Good What is new Pc, Pp, and Q.
What is Consumer Surplus?
What Is Producer Surplus?
What is the cost to the government?
What is Total Surplus?
What is dead weight loss?
What is Total Surplus?
What is dead weight loss?
Subsidy= $20
New Supply Equation
Qs'= 10(P+20)=10P+200
Equilibrium
10P+200=1000-10P
20P= 800
P*= $40
Q*= 10*40+200=600
Price paid by consumers=Pc= $40
Price received by producer= Pp=$40+$20=$60
Equilibrium quantity=Q= 600
Consumer surplus= 0.5(100-40)(600)= $18000
Producer surplus=0.5(60)(600)=$18000
Cost to the government= Subsidy *Quantity=$20*600=$12000
Deadweight loss= 0.5(20)(600-500)= $1000
Total surplus=$18000+$18000-$12000= $24000
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