Refer to Problem 8. Suppose each of the 1 million Islandian households has the same demand curve
Question:
a. What is the household demand curve?
b. How much consumer surplus would each household lose if it had to pay $2 per gallon instead of $1 per gallon for heating oil, assuming there were no other changes in the household budget?
c. With the money saved by not subsidizing oil, by how much could the Islandian government afford to cut each family's annual taxes?
d. If the government abandoned its oil subsidy and implemented the tax cut, by how much would each family be better off?
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a The demand curve for each individual household is as shown in the d...View the full answer
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