Wize University Microeconomics Textbook > Efficiency
CS and PS with Subsidies
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CS and PS with Subsidies
- Consumer surplus is above the consumer's price ($48) but below the demand which is16 * (80 - 48) * 1/2 = $256
- Producer surplus is below the producer's price ($52) but above the supply which is16 * (52 - 20) * 1/2 = $256
- Cost to government is the subsidy multiplied by the new quantity which is$4 * 16 = $64
- DWL is the triangle between the old equilibrium quantity and the new quantity which is(16 - 15) * (52 - 48) * 1/2 = $2
Practice: CS, PS, DWL with Subsidy
The demand for pencils in Pennsylvania is downward sloping and the supply is upward sloping. If the government decides to remove the existing subsidies on pencils, which of the following would occur?