The demand and supply of some good are as follows:                Qd = 2,000 - 10P                Qs = 500 + 40P Suppose that the government grants a subsidy of $10 per unit. Find: (a) the resulting equilibrium quantity (b) the price a buyer will pay (c) the price a seller will receive (d) the change in consumer surplus (e) the change in producer surplus (f) the cost to the government (g) the deadweight loss

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Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.