Investigation 3 Elmo's shoe business does so well that he adds another room to his garage and buys another cutting-and-stitching machine. Unwelcome news comes in the mail, however. The federal government, deciding that running shoes are harmful to the foot, places a tax on all running shoe producers. Seeing his profits shrink, Elmo lays off a worker and cuts his output. After fur- ther research, the federal government reverses its posi- tion and removes the tax, but the running shoe industry remains depressed. To revive it, the city coun- cil votes to pay running shoe producers $1 a pair but requires them to insert heel cups in the shoes to ensure foot health. 1. How does Elmo try to increase his production? 2. a. What kind of tax does the federal government impose? b. How does it influence quantity supplied? 3. What regulation does Elmo have to follow? 4. a. What subsidy does Elmo receive? b. What is the source of the subsidy