This chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the government subsidizes a good. For each unit of the goods sold, the government pays $2 to the buyer. A) Use the black point (plus symbol) to indicate the initial equilibrium in this market before the subsidy. Then use the green point (triangle symbol) to shade the area representing consumer surplus, and use the purple point (diamond symbol) to shade the area representing producer surplus. B) On the following graph, use the tan segment (dash symbols) to indicate the wedge formed between the price received by producers and the price consumers pay out of their own pocket. (Hint: Find the quantity to the right of the initial equilibrium where the difference between the supply and demand curves is $2.) Next use the black point (plus symbol) to indicate the price producers receive at that quantity, and use the grey point (star symbol) to indicate the price consumers pay not including the subsidy. Then use the green triangle (triangle symbols) to indicate consumer surplus in the presence of this subsidy, and the purple triangle (diamond symbols) to indicate producer surplus. This chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the government subsidizes a good. Foreach unit of the good sold, the government pays $2 to the buyer.Use the black point (plus symbol) to indicate the initial equilibrium in this market before the subsidy. Then use the green point (triangle symbol) toshade the area representing consumer surplus, and use the purple point (diamond symbol) to shade the area representing producer surplus.Before Subsidy10DemandSupplyEquilibrium876Consumer SurplusProducer Surplus21++12467810Quantity (Units)Price (Dollars)3. On the following graph, use the tan segment (dash symbols) to indicate the wedge formed between the price received by producers and the priceconsumers pay out of their own pocket. (Hint: Find the quantity to the right of the initial equilibrium where the difference between the supply anddemand curves is $2.) Next use the black point (plus symbol) to indicate the price producers receive at that quantity, and use the grey point (starsymbol) to indicate the price consumers pay not including the subsidy. Then use the green triangle (triangle symbols) to indicate consumer surplus inthe presence of this subsidy, and the purple triangle (diamond symbols) to indicate producer surplus.After Subsidy10DemandSupplySubsidy Wedge876.Price Producers Receive4Price Consumers Pay3Consumer Surplus112345789.10Producer SurplusQuantity (Units)CoLOPrice (Dollars)

A subsidy is a government-provided benefit to a person, corporation, or organization. It typically…

Answered: This chapter analyzed the welfare…

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter5: Supply, Demand, And Price: Applications

Section5.2: Application 2: Subsidizing The Consumption Of Anything Can Raise Its Price

Problem 1ST

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This chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the government subsidizes a good. For each unit of the goods sold, the government pays $2 to the buyer.

A) Use the black point (plus symbol) to indicate the initial equilibrium in this market before the subsidy. Then use the green point (triangle symbol) to shade the area representing consumer surplus, and use the purple point (diamond symbol) to shade the area representing producer surplus.

B) On the following graph, use the tan segment (dash symbols) to indicate the wedge formed between the price received by producers and the price consumers pay out of their own pocket. (Hint: Find the quantity to the right of the initial equilibrium where the difference between the supply and demand curves is $2.) Next use the black point (plus symbol) to indicate the price producers receive at that quantity, and use the grey point (star symbol) to indicate the price consumers pay not including the subsidy. Then use the green triangle (triangle symbols) to indicate consumer surplus in the presence of this subsidy, and the purple triangle (diamond symbols) to indicate producer surplus.

This chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the government subsidizes a good. For
each unit of the good sold, the government pays $2 to the buyer.
Use the black point (plus symbol) to indicate the initial equilibrium in this market before the subsidy. Then use the green point (triangle symbol) to
shade the area representing consumer surplus, and use the purple point (diamond symbol) to shade the area representing producer surplus.
Before Subsidy
10
Demand
Supply
Equilibrium
8
7
6
Consumer Surplus
Producer Surplus
2
1
+
+
1
2
4
6
7
8
10
Quantity (Units)
Price (Dollars)
3.

On the following graph, use the tan segment (dash symbols) to indicate the wedge formed between the price received by producers and the price
consumers pay out of their own pocket. (Hint: Find the quantity to the right of the initial equilibrium where the difference between the supply and
demand curves is $2.) Next use the black point (plus symbol) to indicate the price producers receive at that quantity, and use the grey point (star
symbol) to indicate the price consumers pay not including the subsidy. Then use the green triangle (triangle symbols) to indicate consumer surplus in
the presence of this subsidy, and the purple triangle (diamond symbols) to indicate producer surplus.
After Subsidy
10
Demand
Supply
Subsidy Wedge
8
7
6.
Price Producers Receive
4
Price Consumers Pay
3
Consumer Surplus
1
1
2
3
4
5
7
8
9.
10
Producer Surplus
Quantity (Units)
Co
LO
Price (Dollars)

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