If the govt wishes to use a subsidy to increase equilibrium price and quantity by 10% what is the extra cost to taxpayers???
To determine the extra cost to taxpayers when the government uses a subsidy to increase the equilibrium price and quantity by 10%, you will need to know the amount of the subsidy and the quantity of the subsidized goods or services being produced.
Here's a step-by-step approach to calculating the extra cost to taxpayers:
1. Determine the current equilibrium price and quantity without the subsidy.
- This can be done by analyzing the supply and demand curves for the goods or services in question.
2. Calculate the target equilibrium price and quantity with the 10% increase.
- Multiply the current equilibrium price by 1.1 to get the new equilibrium price.
- Multiply the current equilibrium quantity by 1.1 to get the new equilibrium quantity.
3. Calculate the difference between the new equilibrium price and the current equilibrium price.
- This will give you the amount by which the price is set to increase.
4. Calculate the difference between the new equilibrium quantity and the current equilibrium quantity.
- This will give you the amount by which the quantity is set to increase.
5. Calculate the total amount of subsidy required.
- Multiply the difference in equilibrium price by the new equilibrium quantity.
Once you have these values, you can compute the extra cost to taxpayers:
6. Multiply the total amount of subsidy required by the price per unit of subsidy.
- This will give you the extra cost to taxpayers.
Note that you will need additional information, such as the price per unit of subsidy, in order to calculate the extra cost to taxpayers accurately.