Question

21. When the economics department recruits new professors, the department wants the current faculty to go to dinner with the visitors. It subsidizes this activity by reimbursing current faculty up to $10 per dinner with visitors. What effect does this have on the quantity of dinners current faculty will have with visitors, and on the quality of those dinners (i.e., is this subsidy likely to induce the faculty to go to more expensive or to less expensive restaurants)?

Answer 1

Quantity of dinners goes up due to the subsidy

But, average quality of meals decreases because the relative cost of a high quality meal goes up.