E202Exam2.5 - producers support the subsidy Would consumers...

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6. Refer to Problem 4. Suppose the government decides instead to subsidize gasoline by $0.50. Sellers receive a subsidy of $0.50 for every gallon of gasoline sold. a. What is the equilibrium price and quantity with this subsidy? b. Calculate and graph consumer surplus, producer surplus, and total economic surplus. Would
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Unformatted text preview: producers support the subsidy? Would consumers support the subsidy? c. Calculate and graph the total economic surplus lost as a result of the subsidy. d. Is it possible for consumer surplus to fall in response to a subsidy? Explain....
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