A subsidy is a negative tax in which the government gives people money instead of taking it from them. If the government applied a ?$1.951.95 specific subsidy instead of a specific tax in the figure to the? right, what would happen to the equilibrium price and? quantity? Use the demand function and the after subsidy supply function to solve for the new equilibrium values. What is the incidence of the subsidy on? consumers?
Prior to the? subsidy, demand is
Q=286−20p
and supply is
Q=88+40p.
?First, the new equilibrium price is