2. The graph above shows the demand for sunglasses in Springfield. Suppose the government
grants a subsidy of $3 per pair.
a. Using the supply function Qs =-450+100P, plot and label the supply curve.
b. On the diagram, plot and label a curve to show the effect of the $3 subsidy.
c. Calculate the excess demand or supply at the original equilibrium price.
d. State the new equilibrium price and quantity.
Calculate the level of government expenditure necessary to fund this subsidy.
f. Calculate the change in consumer surplus due to the subsidy.
g. Calculate the change in producer surplus due to the subsidy.
Answers: 1
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2. The graph above shows the demand for sunglasses in Springfield. Suppose the government
grants a...
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