Chapter 6 EOC: If a tax of $2 were imposed on the market shown in the diagram below (where the equilibrium price before the tax is $5.50 and the equilibrium quantity before the tax is 5.5), what price would buyers pay and what price would suppliers receive? How much revenue would be raised by the tax? How much deadweight loss would be created by the tax? Do not round your answers. Price $11 10 Supply NWAUTOVOOO Demand 2 3 4 5 6 8 10 Quantity Buyers would pay $( I Suppliers would receive $[ The tax revenue would be $ 8. The deadweight loss would be $ If a subsidy of $5 were imposed on the market shown in the diagram below (where the equilibrium price before the tax is $5.50 and the equilibrium quantity before the tax is 5.5), what price would buyers pay and what price would suppliers receive? How much would the subsidy cost the government? How much deadweight loss would be created by the subsidy? Do not round your answers. Price $11 10 Supply NW AUT O V OO O Demand 2 4 5 6 8 9 10 Quantity Buyers would pay $[ Suppliers would receive $[ The cost to the government of the subsidy would be $[ 9. The deadweight loss would be $13 Consider the supply and demand diagram below. In this market, the government subsidizes the production of this good, and the subsidy wedge is indicated. Without the subsidy, which area represents the total gains from trade? After the subsidy, which area represents consumer surplus? After the subsidy, which area represents producer surplus? Which area represents total government spending on this subsidy? Which area represents the deadweight loss of this subsidy? Price Quantit 1. Total gains from trade without the subsidy: D" "A + B" "A + B + G+ H" "A + B + G + H - D" 2. Consumer surplus with the subsidy: "A" "A + B" "A + B + G+ H" "A + B + E + F+G" 3. Producer surplus with the subsidy: "H" "G + H" "B + C+ G + H" "A + B+ C+ G+ H" 4. Total government spending on the subsidy: "C" " D" " E + F" "B + C + D + E +F+G" 5. Deadweight loss of the subsidy: 'C" " D" "B + G" "E + F"15. The U.S. government has many subsidies for alternative energy development: Some are just called subsidies; some are called tax breaks instead. Either way, they work just like the subsidies we studied in this chapter. The market for windmills could be represented by one of the two graphs below. Price per windmill Supply Demand Quantity of Price per Supply windmill Quantity of windmills In the first market, supply is "more", "less" elastic than demand. In the second market, supply is "more", "less" elastic than demand. In the "first market", "second market" a subsidy will reduce the price paid by the buyers more. In the "first market", "second market", a subsidy will raise the price paid to the sellers more. In the first market,"Buyers", "Sellers"will get the lion's share of any extra surplus created by the subsidy. In the second market, "Buyers", "Sellers" will get the lion's share of any extra surplus created by the subsidy