Giving a subsidy - numerical
- If the demand function is Qd = 190-5P and the supply function is Qs = -50+15P, calculate the figures for quantity demanded and quantity supplied for prices from $1 to $20.
- Use these figures to plot the supply and demand curves. What is the equilibrium price and quantity?
- The world price is $6, plot this on your supply and demand diagram.
- The government provides a subsidy of $4 per unit for domestic producers. Use your supply and demand diagram to illustrate the impact of this subsidy.
- Calculate the following:
- Domestic firm's revenue before and after the subsidy
- Overseas firm's export revenue before and after the subsidy
- Consumer expenditure before and after the subsidy
- The level of government expenditure on the subsidy
- Using your diagram, show the deadweight welfare loss that results from the subsidy.
- Assess the extent to which the subsidy will benefit domestic firms and consumers.
- Analyse the likely impact on the competitiveness of domestic firms receiving the subsidy.