If instead of a per-unit subsidy, the government offered to pay for half the good's price, no matter the price:
A) the wedge method would no longer work.
B) instead of a parallel shift in demand, the subsidy should be modeled as a demand curve that is twice as steep.
C) demand would be perfectly elastic.
D) there would be no change in how we model the subsidy.

Question

Quizplus · Accepted Answer

The subsidy effectively halves the price for consumers, making the demand curve appear twice as steep because consumers are willing to buy more at any given price level.

If Instead of a Per-Unit Subsidy, the Government Offered to Pay