Consider a perfectly competitive market with inverse market supply $P = 5 + 3 Q ^ { s }$ and inverse market demand $P = 50 - 2 Q ^ { d }$. Suppose the government subsidizes this market with a subsidy of $\$ 5$ per unit. What is the equilibrium quantity traded after imposition of the subsidy?
A) $Q = 10$
B) $Q = 12.5$
C) $Q = 9$
D) $Q = 7.5$

Question

Quizplus · Accepted Answer

The subsidy effectively lowers the supply curve by $5, making it $P = 0 + 3Q^s$. Setting the new supply equal to demand: $0 + 3Q = 50 - 2Q$, solving gives $Q = 10$.

Consider a Perfectly Competitive Market with Inverse Market Supply P=5+3QsP = 5 + 3 Q ^ { s }P=5+3Qs

Consider a Perfectly Competitive Market with Inverse Market Supply $P = 5 + 3 Q ^ { s }$