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Analyzed the welfare effects of tax on good

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We learned about deadweight loss and analyzed the welfare effects of a tax on a good. Now consider the opposite policy. Suppose that the government subsidizes a good: For each unit of the good sold, the government pays $2 to the buyer. How does the subsidy affect consumer surplus, producer surplus, tax revenue, and total surplus? Does a subsidy lead to a deadweight loss? Why or why not?

Reference no: EM133341287

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