Explanation of how removing subsidy

Reference no: EM1316940

Suppose the government provides citizens with free electricity. Specifically, electricity producers receive a subsidy that reduces the price of energy that consumers pay to zero, i.e. the equilibrium price with the subsidy is zero. Using the tools of analysis developed in this course, demonstrate that removing the subsidy will make consumers worse off but will nevertheless improve society economic welfare.

Reference no: EM1316940

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