I understand the first half but get stuck with the budget nuetral subsidy (6-10)
Consider a market where demand is: P = 70 â Q and supply is S: P = Q.
1. Equilibrium quantity Qe is a. 35 b. 36 c. 45 d. 56
2. Equilibrium price Pe is a. $34 b. $35 c. $36 d. $37
3. Consumer surplus CS is a. $610 b. $612.5 c. $615 d. $648
4. Producer surplus PS is a. $610 b. $612.5 c. $615 d. $648
5. Total surplus TS is a. $1,222 b. $1,223 c. $1,224 d. $1,225
Construct a budget neutral subsidy in the above market.
6. Post-subsidy quantity Qâ is a. 35 b. 36 c. 45 d. 56
7. Post-subsidy price Pâ is a. $34 b. $35 c. $36 d. $37
8. Consumer surplus CSâ is a. $610 b. $612.5 c. $615 d. $648
9. Producer surplus PSâ is a. $610 b. $612.5 c. $615 d. $648
10. Total surplus TS is (do not forget to account for the subsidy expenditure SE) a. $1,222 b. $1,223 c. $1,224 d. $1,225