Domestic demand for fidget spinners in the domestic economy

Domestic demand for fidget spinners in the domestic economy is characterized by the equation P=100?2Q, domestic supply is characterized by the equation Q=P?10, and the world price is equal to 30. Then the production subsidy of 5 per unit will:

Solution

Initial supply equation is as follows -

Q = P - 10

At world price of 30, domestic production was,

Q = P - 10 = 30 - 10 = 20

Now, a production subsidy of 5 is being provided.

New supply equation is as follows -

Q = P - 10 + 5

Q = P - 5

Domestic production now at world price,

Q = 30 - 5 = 25

So, production subsidy results in domestic production of 25.

Hence, the correct answer is the option (d).