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This chapter analyzed the welfare effects of a tax on a good. Now consider the opposite policy. Suppose that the government subsidizes a good: For
This chapter analyzed the welfare effects of a tax on a good. Now consider the opposite policy. Suppose that the government subsidizes a good: For each unit of the good sold, the government pays the buyer.
How does the subsidy affect consumer surplus, producer surplus, tax revenue, and total surplus? Does a subsidy lead to a deadweight loss? Explain.
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