Practice Problem: Placing a Subsidy on a Producer in Perfect Competition

[@bobirnasimov9421]

love your content

Great video ❤

[@econhelp_official]

Thank you!! ❤️

[@moncherlucien8727]

Y PRODUCER SUPPLY HEIGHT REGION AFTER SUBSIDY IS 46 - 10 ? My question is the new supply line origines at 0 therefore it should be 46 - 0 right? idk can you clarify?

[@econhelp_official]

Producer Surplus is equal to the price that the producer receives minus the marginal cost of production (summed over each unit traded). The subsidy does not change the true costs of production, so we can find this difference (P-MC) by taking the difference between the price of $46 and the original supply curve (the true, actual, MC). The revised supply curve (S+Subsidy) is really just to gauge how the incentives of the producer change in order to find their willingness to supply and the new equilibrium quantity traded. Another way to think about it is that if we do as you suggest (take 46-0 as the height of the PS), we have essentially given the subsidy twice, through a reduction in costs per unit (shift of the supply down) and an additional $10 per unit increase in price (adding $10 to the new price of $36 that is traded in the market. Does that help?

[@sebastianodalsie7687]

but if we have a percentuage subsidy? example 70%of total expenditure and not a subsidy for quantity. how should we do the exercise?

[@econhelp_official]

If I understand correctly, it will be exactly the same, except the subsidy line will have a different slope (gap between S and S+subsidy will widen as Q increases as the subsidy increases in value). I'll try to do an example, it might take me a week or so though to get something up.

[@sebastianodalsie7687]

@@econhelp_official Ok thank you so much I will wait for your content 🙏🏻 If you can try to do an example with the subsidy intended for consumer and producer and not just one of them would be better.

[@econhelp_official]

Hi! I have an example for the producer, but I'm not sure what it means to have the subsidy intended for both the producer and consumer. Do you mean at the same time? Btw, If you email me ([e-mail]) I can scan the example through, I have others requests before yours and they are taking longer than I had hoped, so I think I will be a while with the video, but I can send you through the working straight away.

[@WijthaGayan]

we are give you incentive create more like this video clip it's kind of economic not government intervention but rather than channel subscribers .sadly say do not create more time duration video because our diminishing marginal utility increase when you do :D

[@econhelp_official]

Hi Wijtha! Short Practice Problems... got it! I'll try my hardest! :) I'm just finishing up another one now and then will do another practice problem. Any requests for topic?