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

P = 150 - 5 Q

The subsidy is paid to suppliers of bread by the government in the amount of 70 pesos per loaf. In the absence of the subsidy, the price of bread would be 110 pesos per loaf. Assuming that the supply of bread is perfectly elastic at the 100 peso price, show the effect of the subsidy on the market equilibrium price of bread.

a. Draw demand and supply and show the equilibrium without government intervention

b. How much is the excess burden in pesos

c. Assuming no externalities, show that the subsidy will result in more than the efficient amount of bread being produced.

d. Show the excess burden of the subsidy on your graph.