Reference no: EM13896906
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.
a. Use a diagram to indicate the pre-subsidy situation in this market. Label the price consumers pay PC0, the price producers receive PP0, the quantity supplied QP0, and the quantity demanded QC0.
b. In your diagram above, indicate the short-run post-subsidy situation in this market. Label the price consumers pay PC1, the price producers receive PP1, the quantity supplied QP1, and the quantity demanded QC1.
c. 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.
d. Clearly indicate in your diagram above the total amount of subsidy the government will have to provide in the long-run. Calculate this amount (I want an exact number) showing all work
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