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If the government imposes a subsidy of $7/unit, then deadweight loss will be $80 $140 $168 None of the above

If the government imposes a subsidy of $7/unit, then deadweight loss will be $80 $140 $168 None of the above

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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### Description of the Graph: The graph illustrates the supply and demand curves in the context of a market with a government-imposed subsidy. It features the following components: - **Axes:** - The vertical axis (P) represents price in dollars, ranging from $10 to $45. - The horizontal axis (Q) represents quantity in units, ranging from 200 to 240. - **Curves:** - **Demand Curve (D):** Downward sloping, indicating the usual inverse relationship between price and quantity demanded. - **Original Supply Curve (S):** Upward sloping, showing the typical direct relationship between price and quantity supplied before the subsidy. - **Subsidized Supply Curve (S_sub):** Lies below the original supply curve S, reflecting the effect of a $7/unit subsidy. - **Equilibrium Points:** - **Initial Equilibrium:** - Price: $25 - Quantity: 200 units - **Subsidized Equilibrium:** - Reduced Price: Approximately $21 - Increased Quantity: 240 units - **Price and Quantity Effects:** - The subsidy decreases the market price from $25 to $21 and increases the quantity exchanged from 200 to 240 units. ### Calculation Task: The question asks: "If the government imposes a subsidy of $7/unit, then deadweight loss will be _____." **Options:** - $80 - $140 - $168 - None of the above The correct answer would be found by calculating the deadweight loss using the change in price and quantity, focusing on the area of the triangle formed between the original and new supply curves and the demand curve.
Transcribed Image Text:### Description of the Graph: The graph illustrates the supply and demand curves in the context of a market with a government-imposed subsidy. It features the following components: - **Axes:** - The vertical axis (P) represents price in dollars, ranging from $10 to $45. - The horizontal axis (Q) represents quantity in units, ranging from 200 to 240. - **Curves:** - **Demand Curve (D):** Downward sloping, indicating the usual inverse relationship between price and quantity demanded. - **Original Supply Curve (S):** Upward sloping, showing the typical direct relationship between price and quantity supplied before the subsidy. - **Subsidized Supply Curve (S_sub):** Lies below the original supply curve S, reflecting the effect of a $7/unit subsidy. - **Equilibrium Points:** - **Initial Equilibrium:** - Price: $25 - Quantity: 200 units - **Subsidized Equilibrium:** - Reduced Price: Approximately $21 - Increased Quantity: 240 units - **Price and Quantity Effects:** - The subsidy decreases the market price from $25 to $21 and increases the quantity exchanged from 200 to 240 units. ### Calculation Task: The question asks: "If the government imposes a subsidy of $7/unit, then deadweight loss will be _____." **Options:** - $80 - $140 - $168 - None of the above The correct answer would be found by calculating the deadweight loss using the change in price and quantity, focusing on the area of the triangle formed between the original and new supply curves and the demand curve.
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