Peter J Wilcoxen > Five Minute Exercises

Subsidy Needed to Achieve a Quantity Target (+)


The initial market equilibrium is unsubsidized and has Q=500
The supply is perfectly elastic with W2A = $50
The elasticity of demand is -0.5
The government would like Q to rise to 600

Exercise 1

Determine the subsidy on each unit needed to achieve the target quantity.


Exercise 2

Determine the amount of deadweight loss caused by the subsidy.


If you get stuck...

Graph of the market
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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 08/17/2016