Indicate the long-run post-subsidy situation in this market

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Assume that the state government is interested in subsidizing the local production of steel. The current price of steel is $1600 per ton and the government wants to provide a subsidy of $100 per ton. Assume that the elasticity of demand is 2, the short-run elasticity of supply is 2, and the long-run elasticity of supply is infinite. Furthermore, assume the equilibrium quantity exchanged (before the subsidy) is 3700 tons per month.

In your diagram above, indicate the long-run post-subsidy situation in this market. Label the price consumers pay PC2, the price producers receive PP2, the quantity supplied QP2, and the quantity demanded QC2.

Reference no: EM13896944

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