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5. Consider the following $10 subsidy for producers. Figure 3: A Per-Unit Subsidy of $10 Price SUPPLY SUPPLY (With subsidy) ~ DEMAND 30 40 Quantity (a) What is the Producer Surplus under the subsidy? (5%) (b) What is the subsidy's Deadweight Loss? (5%) (c) What would the Total Surplus be under a free market? (5%)
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Question 1 Suppose the government introduces a subsidy of $5 (paid to producers) per unit into a market. a) If the government's goal is to help producers, will the subsidy be more or less effective in the short run when the demand curve is relatively elastic? (explain) (6%) b) What is the effect of the subsidy on the equilibrium price, quantity, consumer surplus, and producer surplus in the long run in a constant cost industry? (6%) c) How does the...
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Price (S) 50 Quantity Figure 3 12. Refer to Figure 3. Assume that production of this good generates a $30 per unit external cost. How many of the following regulations would lead to the efficient outcome? • A price ceiling at $30 • A price floor at $60 • A per-unit tax of $30 • A per-unit subsidy of $30 a) 1 b) 2 c) 3 d) 4 13. Refer to Figure 3. Assume that production of this good generates...
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A subsidy is a benefit given by the government to groups or
individuals, usually in the form of cash payment or tax reduction
to encourage production. We can think of a subsidy as a “negative”
tax. Suppose the government gives producers a specific subsidy of
$4 per unit. (35 points)
Using supply and demand curves, draw a diagram that clearly
shows what happens when the specific $4 subsidy is
implemented.
What price do sellers receive and what do the consumers...
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Figure 4: A Subsidy surPLY SUPPLY 70 we suby 35 DEMAND 10 30 40 Qatity The next 4 questions involve the above diagram, which depicts a subsidy of $10 per unit 15.What is the initial market price and quantity, before the subsidy is enacted? (A) p 40, q = 30 (B) p 40, a 40 (C) p 35, g 40 (D) p 10, g = 20 16.What is the market price and quantity, with the subsidy enacted? (A) p 40,...
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How much will the buyer pay for the product after the
tax is imposed?
How much will the seller receive after the tax is
imposed?
As a result of the tax, what has happened to the level
of output?
Calculate the economic welfare after government imposes
a tax of $5 per unit on buyers.
Total Surplus
Government Revenue
DWL
Producer Surplus
Supply Demand 10 20 30 40 50 60 70 80 Quantity
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6. Consider the following $10 subsidy for producers. Figure 3: A Per-Unit Subsidy of $10 SUPPLY SUPPLY (W 30 40 (a) What is the Producer Surplus under the subsidy? (5%) (b) What is the subsidy's Deadweight Loss? (5%) (c) What would the Total Surplus be under a free market? (5%) 1. The COVID-19 pandemic is, for all intents and purposes, causing a worldwide eco- nomic recession, with businesses shutting their doors and many people out of work. Consider the market...
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14. Refer to Figure 3. Assume that production of this good
generates a $30 per unit external cost. How much total surplus is
generated in this market at the efficient outcome?
a) $375
b) $675
c) $1,250
d) $2,175
Price (S) 50 50 Quantity Figure 3
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2. Consider a different case. Suppose that the current marginal cost per unit of a vaccine equals $100. Suppose further that the producer of the vaccine holds a patent on it; and as a result, charges consumers of the vaccine a monopoly price that is 25% above the marginal cost of production. Now suppose that publicly-funded drug research is undertaken which lowers the marginal cost per unit of vaccine from $100 to $60. Assume that producers respond by charging a...
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Price (S 100 50 25 D 500 Quantity Figure 5 20. Refer to Figure 5. How many of the following policies would a firm with market power oppose? Assume that the firm will oppose policies that lead to a reduction in producer surplus. A $60 price floor A $60 price ceiling A $30 tax on consumers A $30 subsidy to consumers a) A firm with market power will oppose 1 of the above policies b) A firm with market power...
5. Consider the following $10 subsidy for producers. Figure 3: A Per-Unit Subsidy of $10 Price SUPPLY SUPPLY (With subsidy) ~ DEMAND 30 40 Quantity (a) What is the Producer Surplus under the subsidy? (5%) (b) What is the subsidy's Deadweight Loss? (5%) (c) What would the Total Surplus be under a free market? (5%)
Question 1 Suppose the government introduces a subsidy of $5 (paid to producers) per unit into a market. a) If the government's goal is to help producers, will the subsidy be more or less effective in the short run when the demand curve is relatively elastic? (explain) (6%) b) What is the effect of the subsidy on the equilibrium price, quantity, consumer surplus, and producer surplus in the long run in a constant cost industry? (6%) c) How does the...
Price (S) 50 Quantity Figure 3 12. Refer to Figure 3. Assume that production of this good generates a $30 per unit external cost. How many of the following regulations would lead to the efficient outcome? • A price ceiling at $30 • A price floor at $60 • A per-unit tax of $30 • A per-unit subsidy of $30 a) 1 b) 2 c) 3 d) 4 13. Refer to Figure 3. Assume that production of this good generates...
Figure 4: A Subsidy surPLY SUPPLY 70 we suby 35 DEMAND 10 30 40 Qatity The next 4 questions involve the above diagram, which depicts a subsidy of $10 per unit 15.What is the initial market price and quantity, before the subsidy is enacted? (A) p 40, q = 30 (B) p 40, a 40 (C) p 35, g 40 (D) p 10, g = 20 16.What is the market price and quantity, with the subsidy enacted? (A) p 40,...
How much will the buyer pay for the product after the
tax is imposed?
How much will the seller receive after the tax is
imposed?
As a result of the tax, what has happened to the level
of output?
Calculate the economic welfare after government imposes
a tax of $5 per unit on buyers.
Total Surplus
Government Revenue
DWL
Producer Surplus
Supply Demand 10 20 30 40 50 60 70 80 Quantity
6. Consider the following $10 subsidy for producers. Figure 3: A Per-Unit Subsidy of $10 SUPPLY SUPPLY (W 30 40 (a) What is the Producer Surplus under the subsidy? (5%) (b) What is the subsidy's Deadweight Loss? (5%) (c) What would the Total Surplus be under a free market? (5%) 1. The COVID-19 pandemic is, for all intents and purposes, causing a worldwide eco- nomic recession, with businesses shutting their doors and many people out of work. Consider the market...
14. Refer to Figure 3. Assume that production of this good
generates a $30 per unit external cost. How much total surplus is
generated in this market at the efficient outcome?
a) $375
b) $675
c) $1,250
d) $2,175
Price (S) 50 50 Quantity Figure 3
2. Consider a different case. Suppose that the current marginal cost per unit of a vaccine equals $100. Suppose further that the producer of the vaccine holds a patent on it; and as a result, charges consumers of the vaccine a monopoly price that is 25% above the marginal cost of production. Now suppose that publicly-funded drug research is undertaken which lowers the marginal cost per unit of vaccine from $100 to $60. Assume that producers respond by charging a...
Price (S 100 50 25 D 500 Quantity Figure 5 20. Refer to Figure 5. How many of the following policies would a firm with market power oppose? Assume that the firm will oppose policies that lead to a reduction in producer surplus. A $60 price floor A $60 price ceiling A $30 tax on consumers A $30 subsidy to consumers a) A firm with market power will oppose 1 of the above policies b) A firm with market power...