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The government considers that apples are healthy and has therefore decided on a piece subsidy of SEK 3 / kg which is paid to the
The government considers that apples are healthy and has therefore decided on a piece subsidy of SEK 3 / kg which is paid to the apple producers.
The market for oranges is characterized by perfect competition. Before the subsidy, the demand is given by P = 12-2Q, and the supply by P = 3 + Q. How is the equilibrium price and quantity affected by the subsidy?
How much are consumer and producer surpluses affected?
How big is the deadweight loss (efficiency loss)? Calculate and illustrate using the appropriate diagram.
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