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University of South Florida, TampaECO 4401 In this problem you're going to analyze the effects of a unit subsidy in a market

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University of South Florida, TampaECO 4401

In this problem you're going to analyze the effects of a unit subsidy in a market. With a unit subsidy the government "pays" a fixed amount per unit of the good produced, s. It doesn't matter if the government pays the consumers or the producers for this, the effect in the market is the same. The system of equations that determine the equilibrium, are Qd = Q. Pa = P. - s ($ 2 0) Qa = a - bPa (a > 0,b > 0) Q. = -c+dP. (c> 0,d > 0) (a) Find out the expressions fo the equilibrium prices, Pe and Par, and quantity in the market, in terms of all the parameters of the model, and the exogenous variable s. How do these expressions differ from those in equation (4)? (In this exercise all the letters represent the same as in the class example, except for s, which is a new parameter.)

(a) Find out the expressions fo the equilibrium prices, Pr and P7, and quantity in the market, in terms of all the parameters of the model, and the exogenous variable s. How do these expressions differ from those in equation (4)? (In this exercise all the letters represent the same as in the class example, except for s, which is a new parameter.)

(b) Derive the partial effects of d in the equilibrium prices and quantity. Can you sign each one of them? Compare them to the partial effects on the equilibrium price and quantity in the class example without the unit tax? How does s, affect each partial effect if at all?

(c) Derive the partial effects of s in the equilibrium prices and quantity. Can you sign each of these partial effects?