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Assume that the market for gasoline is competitive. The government wants to increase the supply of oil so they decide to subsidize gasoline purchases by consumers. The subsidy is a constant amount given to all consumers for every unit of gasoline they buy. Please show me a graph to answer the first question.
Use a graph to show the effect of the subsidy and identify where welfare for the consumers, producers and the government are before and after the subsidy.
Identify the deadweight loss if any.
How will the welfare of consumers, producers, the government, and total welfare be affected (increase, decrease or unchanged) by the subsidy to gasoline purchase?
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