ECON200 QUIZ4 - Name: -Quiz 4-Econ 200A 30 points- Maximum...

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Name: ------------------------------------- Quiz Section: ---------------- Q u i z 4 - E c o n 2 0 0 A Fall 2009 30 points- Maximum of 24 minutes allowed Answer Key 1. (18 points) Consider the market for a good. Use graphical analysis to show the effect of a $1 subsidy paid to the sellers by the government on the equilibrium price and quantity. Point out—on your graph-- the portions of the subsidy received by each side of the market (suppliers and demanders). Write down in each case below who receives most (or all) of the subsidy. a. Consider the supply to be perfectly inelastic and demand to be downward sloping b. Consider the supply curve to be perfectly elastic and demand to be downward sloping c. Consider the demand curve to be perfectly elastic and supply to be upward sloping Q Q P P S D S D a. b. $3 S’ 3 2 $3+$1
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Suppose the pre-subsidy market equilibrium is at P = $3 and the subsidy is $1 per unit. In a., all the subsidy is received by the seller. [The shift of the supply curve down to S’ in this case is on top
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This note was uploaded on 02/06/2010 for the course ECONOMICS 200 taught by Professor Stiban,f during the Winter '10 term at University of Warsaw.

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ECON200 QUIZ4 - Name: -Quiz 4-Econ 200A 30 points- Maximum...

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