Explain how a subsidy can increase economic efficiency. Use a demand and supply diagram to support...
Explain how a subsidy can increase economic efficiency. Use a demand and supply diagram to support your explanation.
Homework Answers
Subsidies are generally considered inefficient because they result in a deadweight loss of efficiency. However cases where are positive externalities exist in the market, market outcome is not efficient and therefore, subsidies can increase the production by shifting the demand (or the supply) to the right, reducing the price paid by buyers (or increasing the price received by sellers) and bringing the market close to its socially efficient level of output. This is shown below where market outcome is at E and efficient outcome as a result of subsidy is at F.
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Explain how a subsidy can increase economic efficiency. Use a
demand and supply diagram to support...
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a) Draw a demand and supply model to illustrate the effects of a government subsidy paid to milk farmers for every litre of milk they sell. (Chapter 6 of the text can help you with this). Assume that demand for milk is relatively inelastic, while the supply of milk is relatively elastic. Illustrate and explain what happens to the price farmers receive, the price buyers pay, the cost to government and the quantity of milk sold. (Do not use actual...
Draw a demand and supply model to illustrate the effects of a government subsidy paid to...
Draw a demand and supply model to illustrate the effects of a government subsidy paid to milk farmers for every litre of milk they sell. (Chapter 6 of the text can help you with this). Assume that demand for milk is relatively inelastic, while the supply of milk is relatively elastic. Illustrate and explain what happens to the price farmers receive, the price buyers pay, the cost to government and the quantity of milk sold. (Do not use actual numbers,...
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Identify and explain any two factors causing an increase in supply. Support your answer with the...
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Total economic surplus The following diagram shows supply and demand in the market for smartphones. Use...
Total economic surplus The following diagram shows supply and
demand in the market for smartphones. Use the black point (plus
symbol) to indicate the equilibrium price and quantity of
smartphones. Then use the green point (triangle symbol) to fill the
area representing consumer surplus, and use the purple point
(diamond symbol) to fill the area representing producer
surplus.
8. Total economic surplus The following diagram shows supply and demand in the market for smartphones. Use the black point (plus symbol)...
9 marks How can taxes be used to increase efficiency when there are externalities? Explain your...
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1- [Equilibrium and Efficiency] 20 points (10 points each) a- Draw a Supply and Demand diagram and determine the equilibrium price and quantity. Explain - using words - why the intersection of supply and demand is the equilibrium of a free marker? (Hints: You need to explain why any other pair of price and quantity can't be the equilibrium) b- Determine the Consumer, Producer, and the Total surplus of the market at the equilibrium. Graphically show that any deviation from...
[12 marks] A 20% subsidy applies to agricultural equipment having a gross of subsidy price of...
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demand in the market for smartphones. Use the black point (plus
symbol) to indicate the equilibrium price and quantity of
smartphones. Then use the green point (triangle symbol) to fill the
area representing consumer surplus, and use the purple point
(diamond symbol) to fill the area representing producer
surplus.
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