In Rivendell live the finest jewellery making elves. The local demand and supply of jewelleries in Revendell are given by QD = 16–3P QS = 5P. We assume the market in Rivendell is perfectly competitive. The jewelleries are highly desired by men, and the price is PW=3 in human society. Assume the elves in Rivendell are price takers. To increase the producers’surplus back to the pre-Covid level, Elrond, the King of Rivendell, decides to subsidize the elves withthe price difference s=PW-PCE for every unit of jewellery they make. Recall that PCE $2. Calculate the price that the sellers receive, the price the consumers pay, and the quantity traded in the equilibrium after the introduction of subsidy. Use a demand and supply diagram to explain your answers.
In Rivendell live the finest jewellery making elves. The local demand and supply of jewelleries in Revendell are given by QD = 16–3P QS = 5P. We assume the market in Rivendell is
To increase the producers’surplus back to the pre-Covid level, Elrond, the King of Rivendell, decides to subsidize the elves withthe price difference s=PW-PCE for every unit of jewellery they make. Recall that PCE $2. Calculate the price that the sellers receive, the price the consumers pay, and the quantity traded in the equilibrium after the introduction of subsidy. Use a demand and supply diagram to explain your answers.
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