Consider a free market with demand equal to Q = 60-4P and supply equal to Q=2P.
(a) What is the value of consumer surplus? What is the value of producer surplus?
(b) Now the government imposes a $3 per unit subsidy on the production of the good. What is the consumer surplus now? The producer surplus? Draw the supply and demand graph and mark the deadweight loss in that graph. And calculate the size of deadweight loss associated with the subsidy.