Consider a Perfectly Competitive Market with Inverse Market Supply $P = 5 + 3 Q ^ { s }$

question 43

Multiple Choice

Consider a perfectly competitive market with inverse market supply $P = 5 + 3 Q ^ { s }$ and inverse market demand $P = 50 - 2 Q ^ { d }$ . Suppose the government subsidizes this market with a subsidy of $\$ 5$ per unit. What is the deadweight loss resulting from the subsidy?

• A)0, subsidies do not have a deadweight loss
• B)2.5
• C)5
• D)7.5

---

Definitions:

Intrinsic Value

The inherent or true value of an asset, investment, or company, based on fundamental analysis, excluding market speculation.

Exercise Price

The predetermined price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase a stock or other asset at a specified price within a specified time.

Risk-free Rate

Often considered as the return on government securities, it represents the interest an investor would expect from an absolutely risk-free investment over a specified period.