The Maxwell School
Syracuse University
Syracuse University
Suppose that suppliers of a healthful product are currently selling 1000 units and receiving a seller price `P^s=$100`. The government would like to increase output to 1200 units by adopting a policy that would raise `P^s`. (You don't need to worry about the details of the policy but the usual way to do this would be a subsidy.) The government knows that the industry's supply elasticity `\eta_s=2`.
If you have more time, try doing the second piece of the policy design: figuring out what has to happen on the buyer side. Suppose the initial buyer price is `P^d=$100` , the initial quantity is 1000 (both same as the initial conditions for the the sellers), and the demand elasticity `eta=-1`.
When you're done, please scan your work and submit it.