This chapter analyzed the welfare effects ofa tax on a good. Consider now the

Chapter 8, Problem 9

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This chapter analyzed the welfare effects ofa tax on a good. Consider now the oppositepolicy. Suppose that the government subsidizesa good: For each unit of the good sold, thegovernment pays $2 to the buyer. How doesthe subsidy affect consumer surplus, producersurplus, tax revenue, and total surplus?Does a subsidy lead to a deadweight loss?Explain.

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