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The supply of and demand for solar panels are given by [tex]Q^s = 5P - 5,000[/tex] and [tex]Q^d = 15,000 - 5P[/tex], respectively, where [tex]P[/tex] is the price per solar panel, and [tex]Q[/tex] is the quantity of solar panels. Suppose the government provides a $500 subsidy per solar panel.

Before the subsidy, consumers pay a price of ____, and after the subsidy, consumers pay a price of ____.

Answer :

Before the subsidy, consumers pay a price of $2000, and after the subsidy, consumers pay a price of $1500.

To determine the prices before and after the government subsidy, we need to find the equilibrium price and quantity both before and after the subsidy is applied.

Step-by-step Analysis

Determine the initial equilibrium:

Set Qˢ equal to Qᵈ to find the equilibrium price before the subsidy:

Qˢ = Qᵈ implies 5P - 5000

= 15000 - 5P

Combining terms, we get 10P = 20000

Solve for P:

P = 2000

Initial equilibrium price (Peq) before subsidy is $2000

Effect of the $500 subsidy:

The subsidy effectively shifts the supply curve downward. Each supplier receives $500 more per unit, which means they can supply the same quantity at a lower price.

New supply function (Qˢ) becomes:

Qˢ = 5(P + 500) - 5000

= 5P

Determine the new equilibrium:

Set the new Qˢ equal to Qᵈ to find the new equilibrium price after the subsidy:

Qˢ = Qᵈ implies 5P = 15000 - 5P

Combining terms, we get 10P = 15000

Solve for P:

P = 1500

Consumers now pay $1500 per solar panel after the subsidy

The price consumers pay before the subsidy is $2000, and after the subsidy, consumers pay $1500.

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