Assume that a research report concluded that people who eat ice-cream are happier and more productive at work. In order to promote the benefits of ice-cream the government pays ice-cream sellers $1.00 for each ice-cream they sell.

• To answer the questions, you may use specific values or answer the questions in general terms, using symbols.

a) Define the concept and the purpose of subsidy. Discuss what effect a subsidy paid to sellers will have on the supply, the demand and the equilibrium price and quantity in the market for ice-cream.(5 points)

b)What determines how the benefit of a subsidy is divided between buyers and sellers? Explain your answer clearly and in detail.(5 points)

c) What will be the cost of the subsidy to the government. Explain. (5 points)

d)Governments sometimes intervene in a competitive market by a price control. Describe in detail the effect on the market and the economic efficiency if a government imposes a rent ceiling in the housing market.(5 points)

Please note:Question (d) is not related to question (a, b, and c).