1. Suppose bread is subsidized in a small Caribbean nation with a high percentage of citizens who live in poverty with a following demand function:

P = 300 - 5 Q where P is the price and Q is quantity demanded

The subsidy is paid to suppliers of bread by the government in the amount of 50 cents per loaf. In the absence of the subsidy, the price of bread would be 80 cents per loaf. Assuming that the supply of bread is perfectly elastic at the 80 cents price,

1. show in a diagram the effect of the subsidy on the market equilibrium price of bread. Assuming no externalities, show that the subsidy will result in more than the efficient amount of bread being produced.
2. Show the excess burden of the subsidy on your graph and compute its dollars.