Reference no: EM133531477

Case: According to Internet World Stats, about 80% of all Americans have high-speed internet access. Suppose that American society decides that it is important that everyone have high-speed access to the internet. That is, suppose society decides that we should raise the percentage of Americans with high-speed internet access from 80% to 100% (for purposes of this question we will ignore the fact that some people do not want internet access.) For many people without high-speed internet access, the biggest obstacle they face is the price of that access. Let's consider two different approaches that might help reduce the price of high-speed internet access for consumers.

a. One approach is for the government to give families whose income is below a specified level a subsidy for purchasing for high-speed internet access. A subsidy to consumers is also called a voucher. A voucher is a piece of paper from the government that buyers can give to internet service providers in payment for internet services. (Internet service providers would then turn these vouchers into the government and get paid money that way.) In essence, vouchers are like increases in income that can be spent only on specified products, in this case, high-speed internet access.

ai) Will this plan of vouchers/ subsidies for consumers for high-speed internet access affect the demand for internet access; the supply of internet access; or neither the demand for nor the supply of for internet access? Justify your answer.

aii) Explain the impact of vouchers on the equilibrium price and equilibrium quantity of internet access.

b. A second approach is for the government to pay internet service providers part of the cost of providing internet access. For example, the government could pay part of the cost of equipment that internet service providers use. When the government pays part of the cost of producing something, such as internet access, that's called a "subsidy."

bi) Will this subsidy to internet service providers affect the demand for internet access; the supply of internet access; or neither the demand for nor the supply of internet access? Justify your answer.

bii) Explain the impact of subsidies to internet service providers on the equilibrium price and equilibrium quantity of internet access.