Consider again the avocado example, where demand and supply functions are Qd = 160 - 40p Qs = 50 + 15p Suppose a severe drought hit California, and the state government decided to subsidize farmers 40 cents for each pound of avocados produced. (Unit: Q is million pounds of avocados, and p is dollars).

With government subsidy, write down the functions of demand and supply. What is the new equilibrium price and quantity of avocados? (Rounding to two decimal places)

What is the price that farmers receive, and the price that consumers pay for each pound of avocados?

What is the percentage of subsidy pass-through to consumers? What is the percentage of subsidy that farmers retain?

How much in total does the state government have to subsidize the farmers?

Suppose the 40 cents subsidy is given to consumers. How dose your answers change?