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# 1 - Economics 101 Spring 2011 Answers to Homework#3 Due...

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to buy with this program, and how much will the program cost the government? Graph your results, and shade the region corresponding to total government cost. Solution: By plugging P = 42 into the supply and demand curves, we see that quantity demanded is 6 and quantity supplied is 16. The surplus is thus 10 pineapples, which will cost them \$420 to buy at the price of \$42 a pineapple. Your graph should show the surplus as a horizontal line between the points (Q=6, P=42) and (Q=16, P=42). The total government cost is the rectangle whose top side is the surplus line and bottom is the Q axis. PRICE SUBSIDY PROGRAMS e. Suppose the government offers the pineapple producers a \$10 subsidy on every unit they sell. Graph the new market supply curve. What will the new market equilibrium quantity and price be with this program? How much does this program cost the government? At any given quantity, the supplier can afford to sell at \$10 less per pineapple than before, since they are now getting the extra money from the government. Thus the new supply curve is shifted down by \$10, or P subsidized =(original supply price)-\$10=2Q s To find the new equilibrium price and quantity, set 60-3Q=2Q which gives Q=12.
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