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Giving a subsidy - numerical

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  1. 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.
  2. Use these figures to plot the supply and demand curves. What is the equilibrium price and quantity?
  3. The world price is $6, plot this on your supply and demand diagram.
  4. 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.
  5. Calculate the following:
    1. Domestic firm's revenue before and after the subsidy
    2. Overseas firm's export revenue before and after the subsidy
    3. Consumer expenditure before and after the subsidy
    4. The level of government expenditure on the subsidy
  6. Using your diagram, show the deadweight welfare loss that results from the subsidy.
  7. Assess the extent to which the subsidy will benefit domestic firms and consumers.
  8. Analyse the likely impact on the competitiveness of domestic firms receiving the subsidy.

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