1.

Suppose that instead of allowing individuals to use their super, the government was to give a $300,000 housing subsidy to buyers (think of the first-home buyers? grant). In the figure below show the new demand curve and indicate ? on the vertical axis ? the effective price buyers pay and the effective price sellers receive as a result of the subsidy.

Note: we are asking about the effective prices. They are not always the same as the equilibrium prices. Also, make sure you indicate the prices on the vertical axis (i.e. pick the PRICE coordinate but make sure the QUANTITY coordinate is 0).

2. What is the total cost of the subsidy policy to the government? Express your answer in millions of dollars. Note: the unit subsidy is $300,000. Here we are asking the TOTAL cost of the policy.

Graphs Tool 1.55 2002-2013 Cengage Learning. All rights reserved. PRICE (in thousands of dollars) 1000 800 600 400 200 2 Supply Demand New Demand Old 8 10 QUANTITY (in thousands of dollars) Demand New Price buyers pay Price sellers receiv Help Clear All