Calculating impact of a subsidy - numerical
Assume a linear demand function of the form:
Qd = 160 - 10P
and a linear supply curve of the form:
Qs = -40 + 15P
Using these demand and supply functions, answer the following questions.
Question 1
Calculate the quantities demanded and supplied for prices from $1 - $15.
Question 2
Plot these figures to give the demand and supply curves for the product.
Question 3
Using simultaneous equations, calculate the equilibrium price and output.
Question 4
If the government gives a subsidy per unit of $5, plot the new supply curve on the original supply and demand diagram. Use the diagram to find out the new equilibrium price and quantity.
Question 5
Calculate the amount spent by the government on the subsidy.
Question 6
Calculate the revenue received by the firms:
- before the subsidy
- after the subsidy
Question 7
Calculate consumer expenditure:
- before the subsidy
- after the subsidy