WORK IT OUTA L LounchPod e stepbystep help in solving the fo

WORK IT OUTA L LounchPod e, step-by-step help in solving the following problem, visit Lounch Pad by using the URL on the back cover of this book. a. Without the subsidy, which areals Consider the following supply and demand diagram. In this market, the government subsidizes the production of this good, and the subsidy wedge is indicated. represent(6) the total gains from tad b. After the subsidy, which areas) represetn consumer surplus? Which area(s) represent(s) producer surplus? Which area(s) represent(s) total government spending on this subsidy? ouThe l Spe 5 Price Supply c. Which area(s) in part b showed up in th answer to more than one of the question Can you explain this? Subsidy Quantity

Solution

Answer:- The area which represents the total gain without subsidy is:- A+B+G+H

Answer:- After the subsidy,

Area representing:-

Consumer surplus = A+B+E+F+G

Producer surplus =B+C+G+H

Total government spending =B+C+D+E+F+G

Answer:- The areas B and C both were the part of the producer surplus and government expenditure.                Consumer surplus and government spending included the areas E,F,G. Thus government is paying for the increase in the consumer surplus ad producer surplus. Thus these areas reflect the surplus of consumer and producer but these are deducted from the overall as it is paid by the government.