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Assignment:
GOVERNMENT INTERVENTIONS AND DEADWEIGHT LOSS
Consider a perfectly competitive market in a closed economy. The market demand and supply functions are given by Q = 20 - P and Q) = P - 2. Now suppose the government provides a subsidy of $4 per unit to all sellers in the market.
(a) What is the equilibrium price and quantity after the subsidy?
(b) Does the subsidy result in a deadweight loss? if so, how much is it?
(c) Draw a graph/graphs to show the consumer surplus, producer surplus, govern- ment subsidy and deadweight loss if there is any.
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