Question 5 - Public Transit Subsidy In a different market, a $3 road usage toll would lead to the socially optimal outcome. However, this is politically unpopular, so the decision is made to subsidize public buses instead. To replace a $3 road usage toll, the second-best subsidy must result in a $3 reduction in the equilibrium price paid by consumers. Demand and supply in the public bus market are given by: (Demand) PD=44 (Supply) ps 3QD 2 (a) Find the free market equilibrium (i.e. no subsidy) price and quantity of bus trips (P*,Q*). (b) Find the equilibrium in the bus market after the subsidy is implemented (P, ps, Q"). (c) Draw a supply and demand diagram showing the answers from the previous two parts. (d) How much does the government spend on this subsidy? (e) Find the deadweight loss due to this subsidy.