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P (dollars) 45 Sgub 28 25 21 10 Q (units) 200 240 Consider the following market. If the government imposes a subsidy of $7/unit, then government expenditure will be ---- $840 $1,680 $2,016 None of the above

P (dollars) 45 Sgub 28 25 21 10 Q (units) 200 240 Consider the following market. If the government imposes a subsidy of $7/unit, then government expenditure will be ---- $840 $1,680 $2,016 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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The graph illustrates a supply and demand model with the following components: - **Axes**: The vertical axis represents the price (P) in dollars, while the horizontal axis represents quantity (Q) in units. - **Supply and Demand Curves**: - The line labeled "S" represents the original supply curve. - The line labeled "S_sub" indicates the supply curve with a subsidy applied. - The line labeled "D" represents the demand curve. - **Equilibrium Points**: - The original equilibrium without subsidy is at a price of $25 and a quantity of 200 units. - The new equilibrium with subsidy is at a price of $21 and a quantity of 240 units. **Scenario Analysis**: - The problem asks about government expenditure when a subsidy of $7 per unit is imposed. - To find the government expenditure, calculate the subsidy amount per unit (240 units - 200 units = 40 units) at a $7 rate. **Multiple Choice Options**: - $840 - $1,680 - $2,016 - None of the above The correct choice involves calculating the total subsidy: 240 units x $7 = $1,680.
Transcribed Image Text:The graph illustrates a supply and demand model with the following components: - **Axes**: The vertical axis represents the price (P) in dollars, while the horizontal axis represents quantity (Q) in units. - **Supply and Demand Curves**: - The line labeled "S" represents the original supply curve. - The line labeled "S_sub" indicates the supply curve with a subsidy applied. - The line labeled "D" represents the demand curve. - **Equilibrium Points**: - The original equilibrium without subsidy is at a price of $25 and a quantity of 200 units. - The new equilibrium with subsidy is at a price of $21 and a quantity of 240 units. **Scenario Analysis**: - The problem asks about government expenditure when a subsidy of $7 per unit is imposed. - To find the government expenditure, calculate the subsidy amount per unit (240 units - 200 units = 40 units) at a $7 rate. **Multiple Choice Options**: - $840 - $1,680 - $2,016 - None of the above The correct choice involves calculating the total subsidy: 240 units x $7 = $1,680.
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