Answer to Question #212471 in Microeconomics for Ryan

Question

The market demand curve for microwaves is Q = 260 - 3P.

The market supply curve for microwaves is Q = 20 + P.

The equilibrium price of a microwave is 60 (Enter only a number. Do NOT enter any symbols.)

The equilibrium quantity of microwaves is 80 (Enter only a number. Do NOT enter any symbols.)

Suppose the government gives firms a $20 subsidy for every microwave sold. After the subsidy is imposed:

The price consumers pay for a microwave after each microwave is subsidized is  (Enter only a number. Do NOT enter any symbols.)

The price firms receive for a microwave after each microwave is subsidized is   (Enter only a number. Do NOT enter any symbols.)

The quantity of microwaves exchanged in the market after each microwave is subsidized is   (Enter only a number. Do NOT enter any symbols.)

Answer 1

The equilibrium point is when the demand and supply curves are equal.

Hence, $260 - 3P = 20 + P$

$240 = 4P$

$P = 60$

Substituting we get $Q = 80$

$1. 60 2 \times 80$

After subsidy, the price actually paid by the consumer is$(P-20)$ . Assuming the supply is constant the lower price paid by the consumer will increase demand thus increasing the equilibrium price and quantity.

$260 - 3(P - 20) = 20 + P$

$260 - 3P + 60 = 20 + P$

$P = 75$

Substituting we get $Q = 95 3 \times (75-20) = 52415$