(Figure: Market for Child Care) Refer to the market for child care that is shown in the figure. The original equilibrium price is $10,000. A subsidy is now introduced for parents who pay for child care. The equilibrium price and quantity before the subsidy were_____ and ____.
A)$9,000; 6,000
B)$10,000; 5,000
C)$1,000; 2,000
D)$10,000; 6,000

Question

(Figure: Market for Child Care) Refer to the market for child care that is shown in the figure. The original equilibrium price is $10,000. A subsidy is now introduced for parents who pay for child care. The equilibrium price and quantity before the subsidy were_____ and ____. 
A)$9,000; 6,000 
B)$10,000; 5,000 
C)$1,000; 2,000 
D)$10,000; 6,000

Quizplus · Accepted Answer

Before the subsidy, the equilibrium price was $10,000 and the equilibrium quantity was 5,000. When a subsidy is introduced, it lowers the cost of child care for parents, which will increase the demand for child care. This will cause an increase in both the equilibrium price and quantity. Since the new equilibrium price is still $10,000, we know that the subsidy is exactly equal to the increase in price, which means that the subsidy is $1,000 per unit of child care. With the subsidy, the new equilibrium quantity is 6,000. Therefore, the equilibrium price and quantity before the subsidy were $10,000 and 5,000, respectively.

(Figure: Market for Child Care) Refer to the Market for Child