The equations below represent the demand and supply curves for annual gym memberships in a certain city. qD= 500 − 2p, qs= 0.5p − 50 Assume that the city government offers a per-unit subsidy of $25 to those who sign up for an annual gym membership. a. Drawing on your knowledge from chapters 2 & 3, find the equilibrium pre and post subsidy. What share of the subsidy benefit accrues to the buyers? b. Do a welfare analysis comparing consumer surplus, producer surplus, and total surplus pre and post subsidy. Is there a deadweight loss associated with the implementation of this subsidy? Sketch a graph, label all relevant intercepts and areas, and refer to those areas to in your answer instead of calculating the monetary value of all surpluses and changes.
The equations below represent the demand and supply
certain city.
qD= 500 − 2p, qs= 0.5p − 50
Assume that the city government offers a per-unit subsidy of $25 to those who sign up for an
annual gym membership.
a. Drawing on your knowledge from chapters 2 & 3, find the equilibrium pre and post subsidy.
What share of the subsidy benefit accrues to the buyers?
b. Do a welfare analysis comparing
post subsidy. Is there a
Sketch a graph, label all relevant intercepts and areas, and refer to those areas to in your answer
instead of calculating the monetary value of all surpluses and changes.
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