The market demand and supply functions for cotton are: $Q_{D}=10-0.4 P$ and $Q_{S}=3.8 P+4$. To assist cotton farmers, suppose a subsidy of $\$ 0.10$ a unit is implemented. 1) Calculate the original(before the subsidy) and new level of consumer and producer surplus (sketch a diagram showing both). 2) Did the increase in consumer and producer surplus exceed the increased government spending necessary to finance the subsidy?

Public Answer

J8TJET The First Answerer