EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Chapter 5, Problem 13SP
To determine
Determine three possible solutions to reduce the
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Economists in Champaign have been studying the local market for pizza. The market is described in the graph below:
Some research by the local university shows that eating pizza improves health in several ways. The local government decides to subsidize pizza consumption paying for $2 of every pizza sold(essentially a negative tax of $2). How much will the government spend with this subsidy?
Suppose the government of the island has decided to make tomatoes more affordable to consumers by imposing a fixed per unit subsidy.
Thus, start with the original demand (Qd = 50 – 5P) and supply (Qs = 5P – 25) and analyze this new intervention, the subsidy. The subsidy works like this: tomato sellers receive a $4 refund from the government for each kilogram of tomatoes they sell to consumers.
What is the price that the producers will effectively earn for their tomatoes, inclusive of the subsidy?
How much will the government spend on tomato subsidies in this case in total? (Recall the units of measurement: P is the price in dollars per kilogram of tomatoes; and Q is the quantity of tomatoes, expressed in thousands of kilograms.)
Produce a new graph depicting the new, post-subsidy equilibrium complete with (solved) values for the new price and quantity. Please include the original supply curve in this graph, in addition to the new “effective supply” curve; and clearly label the shift…
Some research by the local university shows that eating burritos improves health in several ways. The local government decides to subsidize burrito consumption paying for $2 of every burrito sold(essentially a negative tax of $2). How much will the government spend with the subsidy?
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EBK PRINCIPLES OF MICROECONOMICS (SECON
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