What is the dollar value of the subsidy

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A new device is invented which reduces air pollution when attached to a vehicle's exhaust system. To encourage the use of this device, the state offers a price subsidy to consumers sufficient to increase the quantity demanded by 25%. The supply and demand curves for the device are:

Supply: P=0.0003Q  Demand: P=20-0.0002Q

a. What is the dollar value of the subsidy? Illustrate using a supply and demand graph. Label the area of the subsidy.

b. What is the dollar value of the change in consumer surplus due to the subsidy? Illustrate. Label the area.

c. Is there any deadweight loss due to the subsidy? If so, what is the dollar value? Illustrate. Label the area.

Reference no: EM132414944

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