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.

Exploring Economics
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ISBN:9781544336329
Author:Robert L. Sexton
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Chapter7: Market Efficiency And Welfare
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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.
Subsidies in proportion to the elasticities of demand for each good.
Subsidise only Good A.
Subsidise only Good B.
Any of the above.
No answer.
Transcribed Image Text: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. Subsidies in proportion to the elasticities of demand for each good. Subsidise only Good A. Subsidise only Good B. Any of the above. No answer.
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