SIU, Econ240 -Introduction to Microeconomics, Problem Set-3. Hundanol Kebede
E. Suppose a government that favors energy drink producers took office and started subsidizing production of energy drinks. The new supply curve inclusive of the subsidy is shown haln...
Price
(i) What is the new equilibrium quantity?
(ii) How much price per unit do consumers pay in equilibrium?
(iii) How much price per unit do sellers receive in equilibrium? I,00C
(iv) How much is the per-can subsidy? 20,000
(v) How much is the new consumer surplus?
(vi) How much is the new producer surplus?
(vii) How much does the government spend on subsidy in total?
(viii) How much of the government spending goes to consumers as additional consumer surplus and how much goes to producers as additional producer surplus compared to the competitive equilibrium in (C)?
(ix) What is the deadweight loss?
shown below Price (dollars per can)
Supply
2.5
Supply+subsidy
2
1.5
1
0.5
5
10
15
20
25
Quantity (thousand of cans per month)
(i) What is the new equilibrium quantity? (ii) How much price per unit do consumers pay in equilibrium? (iii) How much price per unit do sellers receive in equilibrium? lO,oo c (iv) How much is the per-can subsidy?26,co0 (v) How much is the new consumer surplus? (vi) How much is the new producer surplus? (vii) How much does the government spend on subsidy in total? (viii) How much of the government spending goes to consumers as additional consumer surplus and how much goes to producers as additional producer surplus compared to the competitive equilibrium in (C)? (ix) What is the deadweight loss?