ib-economics-quantitative

Question 13.3In the market for bottled water, the demand function is Q D = 3 – 2P and the supply function isQ S = 2P, where price is given in $ per litre of water and quantity is given in millions of bottlesper month. (The x-axis should be from 0 to 4 and the y-axis should be from 0 to 2.)i. Plot the curves from the functions above on the graph below. Fully label the axes.ii. Identify the equilibrium prices and quantities.iii. Add the world supply curve if foreign producers are prepared to supply bottled waterat $0.50.iv. Show the effect on the diagram of the government grants a subsidy of $0.20 on alldomestic production of bottled water.v. Identify the level of domestic production before the subsidy and after.vi. Calculate the amount of revenue for domestic producers before the subsidy andafter.vii. Identify the level of imports before the subsidy and after.viii. Calculate the amount of revenue for foreign producers before the subsidy and after.ix. Calculate the amount of government expenditure on the subsidy.x. Calculate the dead-weight losses suffered as a result of granting the subsidy.Produced by Ian Dorton & Jocelyn Blink Page 63