10.5. Consider the market for crude oil. Suppose the demand curve is described by Qd " 100 ! P, where Qd is the quantity buyers will purchase when the price they pay is P

(measured in dollars per barrel). The equation representing the supply curve is QS " P/3, where QS is the quantity that producers will supply when the price they receive is P.

The market for crude oil is initially in equilibrium, with no tax and no subsidy. Because it regards the price of oil as too high, the government wishes to help buyers by announcing that it will give producers a subsidy of $4 per barrel. A local television station reporter announces that the subsidy should lower the price consumers pay by $4 per barrel.

Analyze the reporter’s claim by determining the price buyers pay before and after the subsidy, and provide intuition to explain why the reporter is correct or incorrect.