(Figure: Market for Reusable Jute Shopping Bags) Refer to the market for reusable jute shopping bags that is shown in the figure. The original equilibrium price is $7 per bag. A subsidy is now introduced for buyers of the bags. The amount of the subsidy is:

Question

Quizplus · Accepted Answer

The subsidy shifts the demand curve to the right, increasing the quantity demanded and price. The new equilibrium price is at $9 per bag. The difference between the original equilibrium price and the new equilibrium price is $2. Therefore, the subsidy amount is $2 per bag (the amount of the price increase due to the subsidy).

(Figure: Market for Reusable Jute Shopping Bags) Refer to the Market