Question 2 a) Assume that in ancient Rome demand for bread could be described by p=10-Q and supply by p=2+Q where p is price in Roman currency and Q quantity. How high would price and quantity be if quantities were set in perfect competition in this market? (2 p) b) Many of the emperors provided subsidies to bread for citizens of Rome. Consider a subsidy large enough that the price that consumers pay is 0 for a loaf of bread. What is consumer surplus, producer surplus and the cost of the subsidy for the government under this policy? (hint: you can model a subsidy as the opposite of a tax). Calculate the deadweight loss and illustrate it in a graph. (6 p) c) Later emperors also provided subsidies for other goods so that these goods were also available for free to Romans. Use figures and briefly discuss how the elasticity of demand for a good affects the deadweight loss of a subsidy for that good. (4 p) d) If you visit the Colosseum in Rome there are many different options for tickets. Briefly discuss the different measures below and whether they might work as forms of price discrimination and, if so, in what way. i. There is typically a long line to get in after you have bought the ticket. One form of ticket allows you to skip the line. (2 p) ii. Discounts for retired people. (2 p) iii. A combination ticket where visits to several historical sites in Rome are offered at one price. (4 p)