Question
In a closed economy, these are the demand and supply curves in the perfectly competitive apples market QD = 9 - 1/4 P; QS =
In a closed economy, these are the demand and supply curves in the perfectly competitive apples market QD = 9 - 1/4 P; QS = 2P a) What is the welfare effect of a $2.25 subsidy on apples producers? Explain by how much consumer surplus, producer surplus and total surplus change. Who benefits most from the subsidy? [6 marks] b) Instead of calculating new CS and TS, are there other ways to understand who would get most of the subsidy gains? [2 marksl c) If the subsidy was given to consumers instead of producers, who would benefits most from it? Why? [2 marks]
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