Using the following diagram (the equilibrium quantity is 5.5, the supply curve intersects the price axis at 3.5), answer these questions: a) If a tax of $2 were imposed, what price would buyers pay, and what price would suppliers receive? How much revenue would be raised by the tax? Compute the total consumer surplus, producer surplus, and welfare after the introduction of the tax. b) If a subsidy of $5 were imposed, what price would buyers pay, and what price would suppliers receive? How much would the subsidy cost the government? What would be the consumer surplus and the producer surplus? c) If the government imposed a binding price floor of $7 and compensated the producers by buying the excess surplus at the stated price: What would be the consumer surplus, the producer surplus, the government expenditures, and total welfare?
Using the following diagram (the equilibrium quantity is 5.5, the supply curve intersects the
a) If a tax of $2 were imposed, what price would buyers pay, and what price would suppliers receive? How much revenue would be raised by the tax? Compute the total
b) If a subsidy of $5 were imposed, what price would buyers pay, and what price would suppliers receive? How much would the subsidy cost the government? What would be the consumer surplus and the producer surplus?
c) If the government imposed a binding
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