--%>
Assignment Help - homework help

Determine equilibrium quantity

Following equations denote market for widgets
Demand: P = 10 - Q Supply: P = Q - 4

Here P mentions the price in dollars per unit and Q mention the quantity in thousands of units. Assume the government has a change of heart regarding the importance of widgets to the happiness of the American public. The tax is eliminated and a subsidy of $1 per unit is granted to widget producers. Determine equilibrium quantity be? What price will the buyer pay? What amount per unit (by including the subsidy) will the seller attain? What will be the net cost to the government?
The original supply curve for widgets was P = Q - 4. Along with a subsidy of $1.00 to widget producers, the supply curve for widgets shifts outward. Remember that the supply curve for firm is its marginal cost curve. Along with a subsidy, the marginal cost curve shifts down by the amount of the subsidy. The new supply function is following:
                                                                           P = Q - 5.
To obtain the new equilibrium quantity, set the new supply curve equal to the demand curve:
                                                                           Q - 5 = 10 - Q, or Q = 7.5.
The buyer pays P = $2.50, and the seller attain that price plus the subsidy, that means, $3.50. Along with quantity of 7,500 and a subsidy of $1.00, the net cost of the subsidy to the government will be $7,500.

   Related Questions in Finance Basics

  • Q : What is a Provision Provision : The

    Provision: The language in a bill or act which imposes necessities or constraints on actions or expenditures of the state. The provisions are frequently employed to constrain the expenditure of appropriations however it might also be employed to give

    		•
  • Q : Decision rule using net present value

    Describe the decision rule for accepting or rejecting proposed projects while using net present value? While using the net present value decision rule any project along with a net present value greater than or equal to zero would be acceptable.

    		•
  • Q : Describe the benefits of paying late

    Describe the benefits of "paying late" (but not too late) and how do companies try to do this? Since money has time value, the later cash is paid, but not too late, the better. Companies employ remote disbursement banks to facilitate holding at

    		•
  • Q : What is an Initiative Initiative : The

    Initiative: The power of electors to propose statutes or Constitutional amendments and to accept or reject them. An initiative should be limited to a single subject and be filed with the Secretary of State with the suitable number of voter signatures

    		•
  • Q : Define Tort Tort : It is a civil wrong,

    Tort: It is a civil wrong, other than a breach of contract, for which the court awards indemnity. The traditional torts comprise malpractice, negligence, assault and battery. Lately, torts have been widely expanded such that the interference with a co

    		•
  • Q : Means of weight in the weighted average

    Normal 0 false false

  • Q : Question based on consolidated balance

    Normal 0 false false

    		•
  • Q : Define Schedule Schedule : The

    Schedule: The explanation of an appropriation in the Budget Bill or Act, exhibiting its distribution to each of the programs, categories, or therefore projects. OR The supplemen

    		•
  • Q : What do you mean by Authorized What do

    What do you mean by Authorized: Provided the force of law (example, by statute). For certain action or quantity to be authorized, it should be possible to recognize the enabling source and date of approval.

    		•
  • Q : Why do analysts compute financial ratios

    Why do analysts compute financial ratios? Ratios are comparative measures.  Since the ratio illustrates relative value, they let financial analysts to compare information which could not be compared in its raw form.  For instance, rati

    		•