Question Given a demand curve of P = 66 - 2Q and a supply curve of...
Question
Given a demand curve of P = 66 - 2Q and a supply curve of P = 6 + 0.5Q, consider a subsidy of 30 and a tax of 15.
Solve for the resulting quantity (Answer 1) and the resulting deadweight loss (Answer 2).
Solution
To solve this problem, you need to recognize that only the net effect matters. The net effect here is a subsidy of 15.
Using the usual procedure, we find that the resulting quantity is 30 and the DWL is 45.
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