Hi,

I am trying to confirm if the answer to #39 is correct:

34. Consider a perfectly competitive market with market supply of Q_S = -1.67 + .33P and market demand of Q_D = 25 - .5P.Suppose the government subsidizes this market with a subsidy of $5 per unit.What is the equilibrium price before the subsidy?Please round and write the answer to one cent, for example $2.43 or $0.56.Use a minus sign to indicate if the number is negative.

Answer:

Equilibrium price before the subsidy=$32.13

Explanation:

Equilibrium price before the subsidy=$32.13

Market supply of Q_S= -1.67 + .33P and market demand of Q_D= 25 - .5P

Before subsidy, the market operates at the market clearing point where; Q_S= Q_D

-1.67+0.33P=25-0.5P

290.83P=26.67

P=32.1325

Equilibrium price before the subsidy=$32.13

35.Consider a perfectly competitive market with market supply of Q_S = -1.67 + .33P and market demand of Q_D = 25 - .5P.Suppose the government subsidizes this market with a subsidy of $5 per unit.What is the equilibrium price and quantity traded before the subsidy? Please round and write the answer and round to two decimals, for example 3.54 or 5.65.Use a minus sign to indicate if the number is negative.Use a minus sign to indicate if the number is negative.

Answer:For the equilibrium quantity, substitute equilibrium price in equation for demand

Qd=25-0.5p

=25-0.5(32.13)

=25-16.07

=8.93

The equilibrium price and quantity tradedbeforethe subsidy is;Equilibrium Price $32.13 and Equilibrium quantity 8.93

36.Consider a perfectly competitive market with market supply of Q_S = -1.67 + .33P and market demand of Q_D = 25 - .5P.Suppose the government subsidizes this market with a subsidy of $5 per unit.What is the equilibrium quantity traded after imposition of the subsidy?Please round and write the answer in billions and round to two decimals, for example 3.54 or 5.65.Use a minus sign to indicate if the number is negative002E

Answer: Therefore the equilibrium quantity=39.77

Explanation:

equilibrium Q and P before subsidies

-1.67+0.33P=25-0.5P

-1.17P=24.67

p=-21.09

Q=35.54

after subsidies of $5

the price becomes -24.67-5=-29.54

therefore the equillibrium quantity=25--0.5*29.54=39.77

37.What is the price consumers pay for the product?Please round and write the answer to one cent, for example $2.43 or $0.56.Use a minus sign to indicate if the number is negative.

Answer:So the value of Z is $27.13. Hence the price paid by consumers is $27.13

38.What is the price producers receive for the product?Please round and write the answer to one cent, for example $2.43 or $0.56.Use a minus sign to indicate if the number is negative.

Qs = Qd

=> -1.67+0.33P = 25 -0.5P

=> 0.83P = 26.67

=> P = 26.67/0.83 = $32.133

Now if we plug the equilibrium Price (Eq. P = $32.133) in any of the market demand or supply equation we will have the equilibrium Quantity.

Q = 25 - 0.5*(32.133) =8.934 units

So, eq. quantity = 8.934 units

Now when a subsidy of $5 is imposed in the market, the new supply curve will be:

Qs + subsidy = -1.67+0.33(P+5)

=>Qs + subsidy = -1.67 + 0.33P + 1.65

=> Qs + subsidy = -0.02 + 0.33P

After subsidy the new equilibrium condition will be:

Qs + subsidy = Qd

=>-0.02 + 0.33P = 25 -0.5P

=> 0.83P = 25.02

=> P = $30.145

Now if we plug the equilibrium Price (Eq. P = $30.145) in any of the market demand or the new supply equation we will have the equilibrium Quantity.

Q = 25 - 0.5*(30.145) =9.928 units

So, eq. quantity = 9.928 units

Now td draw the curves we have to find the vertical and horizonal intercepts of the above equations we have to consider Q = 0, for both the equations which will give us the vertical intercept and then P = 0, which will give the horizontal intercept.

For the demand equation : Qd = 25 -0.5P

When Q = 0, we have P =50, so the the vertical intercept is (0,50) and when P = 0 , we have Q = 25, which gives us the horizontal intercept at (25,0)

For the supply equation : Qs = -1.67+0.33P

When Q = 0, we have P = 5.06, so the the vertical intercept is (0,5.06) and when P = 0 , we have Q = -1.67, which gives us the horizontal intercept at (-1.67,0)

For the supply equation after subsidy:Qs + subsidy =-0.02 + 0.33P

When Q = 0, we have P = 0.06, so the the vertical intercept is (0,0.06) and when P = 0 , we have Q = -0.02, which gives us the horizontal intercept at (-0.02,0)

Answer:We can see that due to subsidy, the price producers receive is $32.13 and the price paid by the consumers is Z.

Now to find Z we have to plug the value of Q = 8.934 in place of the quantity in the supply equation after subsidy.

Qs + subsidy = -0.02 + 0.33P

=> 8.934 = -0.02 + 0.33P

=> 0.33P = 8.954

=> P = 27.13

**We can see the subsidy amount is the difference between what producers receive and what consumer pays $(32.13 - 27.13) =$5. So our calculations are correct.

39.Consider a perfectly competitive market with market supply of Q_S = -1.67 + .33P and market demand of Q_D = 25 - .5P.Suppose the government subsidizes this market with a subsidy of $5 per unit.What is the increase in consumer surplus resulting from the subsidy?Please round and write the answer to one cent, for example $2.43 or $0.56.Use a minus sign to indicate if the number is negative.

Answer:Qs = -1.67 + 0.33P

Qd =25--0.5P

equate both equations'

-1.67 + 0.33P = 25 - -0.5P

-1.67 - 25 = -0.5P - 0.33P

-26.67 = -0.83P

divide both sided by the value of P which is -0.83

P = 32.13

In the equation above, replace the P with 32.13 to get

Qs = -1.67 + (0.33*32.13)

= 8.93

Qd = 25 - (0.5*32.13)

=8.93

The government issued a subsidy of $5 per unit

32.13 - 5

=27.13

Qd = -1.67 + (0.33*27.13)

=11.44

11.44 - 8.93

=2.51

=$2.51

40.Consider a perfectly competitive market with market supply of Q_S = -1.67 + .33P and market demand of Q_D = 25 - .5P.Suppose the government subsidizes this market with a subsidy of $5 per unit.What is the deadweight loss resulting from the subsidy?Please round and write the answer to one cent, for example $2.43 or $0.56.Use a minus sign to indicate if the number is negative.

Answer:Deadweight loss of subsidy

= 0.5 ( quantity after subsidy - quantity before subsidy ) * ( Price willing to accept at subsidized quantity in old supply - Old price before subsidy )

= 0.5 ( 9.95 - 8.93 ) * ( 35.21 - 32.13 )

= 0.5 * 1.02 * 3.08

= $1.57 is dead weight loss

41.Consider a perfectly competitive market with market supply of Q_S = -1.67 + .33P and market demand of Q_D = 25 - .5P.Suppose the government subsidizes this market with a subsidy of $5 per unit.What is the impact on the government's budget resulting from the subsidy?Please round and write the answer to one cent, for example $2.43 or $0.56.Use a minus sign to indicate if the number is negative.

Answer:Budget deficit will increase because of increase in subsidy

Total subsidy

= Per unit subsidy * After subsidy quantity

= $5 * 9.95

= $49.75 is total cost of subsidy

This will decrease budget by $49.75. Thus there will be decrease in budget due to increase in cost.