Names: ______________________________      ______________________________

             ______________________________      ______________________________

 (1) Demand: Qd = 16 - 2Pb => Pb= 8-(1/2)Qd
 (2) Supply: Qs = 1 + Ps => Ps = -1+Qs
 (3) Equil.: Qd = Qs
 (4) Subsidy:Ps - Pb = sub=> Ps = Pb + 3

So we have 4 equations and 4 unknowns (Pb, Ps, Qd, Qs). Solving this system of equations yields:
   Pb = ______
   Ps = ______
   Qd = ______
   Qs = ______

 Checklist:
    ___     Label the new quantity, Pb and Ps in the diagram

         1. Impact on consumers:
    ___     Has consumer surplus (CS) gone up or down? ______
    ___     In the diagram the change in consumer surplus = ________
    ___     Compute the size of the change in consumer surplus:

         2. Impact on producers:
    ___     Has producer surplus (PS) gone up or down? ______
    ___     In the diagram the change in producer surplus = ________
    ___     Compute the size of the change in producer surplus:
 
 
 

         3. Impact on government/taxpayers:
    ___     Does government receive (+) or spend (-) money? ____________
    ___     In the diagram the receipts/spending = ____________
    ___     Compute the size of the impact on the government:
 

         4. Overall impact of the subsidy on social welfare:
            change in CS + change in PS + change in government revenues
            = ______
            = area ____________ in the diagram