Consider the following equations describing the supply and

Question

Consider the following equations describing the supply and demand curves, respectively:

Supply: P = 4 + S,

P=4+S,

Demand: P = 10 - D.

P=10-D.

1. Find the equilibrium price and quantity of this market. Then work out the consumer surplus, producer surplus and total economic surplus at the market equilibrium.
2. Suppose that the government has decided to provide a subsidy of $2 per unit to suppliers. Write down the new supply curve for the suppliers. Then, work out the new equilibrium quantity.
3. Given the new quantity produced and sold, calculate consumer surplus, producer surplus and the cost of the subsidy. Then work out total economic surplus.
4. Calculate the deadweight loss of the subsidy.