IMPOSITION OF SUBSIDIES

[ahlashi]

suppose Qs=10=4p and Qd=100-6p
suppose government institutes a subsidy of t=$3 per unit of apples sold.
calculate th equilibrium qty sold after imposition of subsidy and R the tax revenue needed to pay for the subsidy


pls help me out with this

[SM]

Hi Ahlashi!

Here, a subsidy is given to the consumers for their benefit, i.e to reduce the price at which they buy apples. (Think of an LPG subsidy)

Thus, ps=pd+3 , using this,

S=10+4(pd+3) and D=100-6pd

Equating both of them, Pd= 7.8 and thus ps= 10.8, q=53.2

Since the government pays the subsidy from its budget, at this quantity, the expenditure is 53.2*3= 159.6.



 

[ahlashi]

thankyou SM
got it