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Given a demand curve of P = 77 - Q and a supply curve of P...

Given a demand curve of P = 77 - Q and a supply curve of P = 1 + Q, with a subsidy of 24, solve for the resulting quantity.

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Answer #1

At equilibrium, demand = supply

77 - Q = 1 + Q

Q = 38

At this Q, P = 39

The difference between demand curve touching price axis - equilibrium price is equal to equilibrium price - supply curve touching price axis, it means that demand and supply are equally elastic and benefit of subsidy would fall equally among consumers and producers.

Price paid by consumer fall to 27 and price received by producer rises to 51. At this price, quantity after subsdiy rises to 50.

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