1. Assume the government wants to encourage people to eat more vegetables. Therefore, it gives farmers a subsidy to produce more vegetables (to make it easier, you can draw one diagram representing all vegetables and assume a fixed subsidy is used). Use a clearly-labelled diagram to show what happens to equilibrium price and quantity after the subsidy change? Is the new vegetable price the old price subtract the subsidy? (3 marks)
2. Show the total change in CS, PS and DWL from the subsidy on the diagram. Who do you think benefits more from the subsidy, the consumer or producer? Does the government benefit or lose? (2 mark)