An economy only has two goods (A and B) which are produced. The goods are neither complements nor substitutes for one another. Good A has a perfectly inelastic supply curve and Good B has an upward sloping supply curve. Both goods have downward sloping demand curves. If the government wishes to implement a per unit subsidy S to increase total consumer surplus then what is the best policy? O Equal subsidy to both goods. O Subsidies in proportion to the elasticities of demand for each good. O Subsidise only Good A. O Subsidise only Good B. O Any of the above.

An economy only has two goods (A and B) which are produced. The goods are neither complements nor substitutes for one another. Good A has a perfectly inelastic supply curve and Good B has an upward sloping supply curve. Both goods have downward sloping demand curves. If the government wishes to implement a per unit subsidy S to increase total consumer surplus then what is the best policy? O Equal subsidy to both goods. O Subsidies in proportion to the elasticities of demand for each good. O Subsidise only Good A. O Subsidise only Good B. O Any of the above.

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter5: Elasticity Of Demand And Supply

Section5.A: Appendix: Price Elasticity And Tax Incidence

Problem 2AQ

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