Suppose that the government wishes to encourage the manufacture and sale of small cars. The current supply and demand of small cars are: Qs = −(10/9) + (1/9)P; Qd = 100 − P, where Q is in millions of cars and P is in hundreds of dollars. Now, suppose that the government is considering two alternative plans for encouraging small car sales. Under Plan A, every car manufacturer will receive a $500 rebate from the government for each car sold. Under plan B, every purchaser of a small car will receive a $500 rebate from the government. Which of the plan is more effective in encouraging sales? Show by computing the equilibrium quantity under each plan.
Suppose that the government wishes to encourage the manufacture and sale of small cars. The current supply and demand of small cars are: Qs = −(10/9) + (1/9)P; Qd = 100 − P, where Q is in millions of cars and P is in hundreds of dollars. Now, suppose that the government is considering two alternative plans for encouraging small car sales. Under Plan A, every car manufacturer will receive a $500 rebate from the government for each car sold. Under plan B, every purchaser of a small car will receive a $500 rebate from the government. Which of the plan is more effective in encouraging sales? Show by computing the equilibrium quantity under each plan.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Suppose that the government wishes to encourage the manufacture
and sale of small cars. The current supply and demand of small cars
are: Qs = −(10/9) + (1/9)P; Qd = 100 − P, where Q is in millions of
cars and P is in hundreds of dollars.
Now, suppose that the government is considering two alternative plans
for encouraging small car sales. Under Plan A, every car manufacturer
will receive a $500 rebate from the government for each car sold. Under
plan B, every purchaser of a small car will receive a $500 rebate from
the government.
Which of the plan is more effective in encouraging sales? Show by
computing the equilibrium quantity under each plan.
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