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 with the price difference s= PW - PCE for every unit of jewellery they make. Recall that PCE is calculated in question 2.3. 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. PCE=2
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
and the price is PW=3 in human society. Assume the elves in Rivendell are price takers
To increase the
decides to subsidize the elves with the price difference s= PW - PCE for every unit of jewellery they make.
Recall that PCE is calculated in question 2.3. 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.
PCE=2
Given,
QD = 16 – 3P
QS = 5P
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