How does subsidy affect consumer surplus producer surplus

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Q. this chapter analyzed welfare effects of a tax on a good. Consider now opposite policy. Assume that government subsidizes a good: For each unit of goods sold, government pays $2 to buyer. How does subsidy affect consumer surplus, producer surplus, tax revenue and total surplus? Does a subsidy lead to a deadweight loss? Elucidate.

Reference no: EM1367330

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