Determine the effect of subsidy on market equilibrium

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Reference no: EM1369261

Assume bread is subsidized in a small Caribbean nation with a high percentage of citizens who live in poverty. The subsidy is paid to suppliers of bread through government in amount of 50 pesos per loaf. In the absence of the subsidy, the price of bread would be 100 pesos per loaf. Assuming that the supply of bread is perfectly elastic at the 100 peso price, what is the effect of the subsidy on the market equilibrium price of bread? Draw a graph, and explain the excess burden of the subsidy. Assuming no externalities, why will subsidy result in more than the efficient amount of bread being produced? Create a graph on a spreadsheet program

Reference no: EM1369261

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