How much total economic surplus would have been lost if the bread subsidy, as illustrated in Example 7.7, had been set at $0.50 per loaf instead of $1.00?
Answer:
With a $0.50-per-loaf subsidy, the new domestic price becomes $1.50 per loaf. The new lost surplus is the area of the small shaded triangle in the diagram: (1/2)($0.50/loaf)(1,000,000 loaves/month) = $250,000 per month. (LO5)
Economics
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