If Instead of a Per-Unit Subsidy, the Government Offered to Pay

question 34

Multiple Choice

If instead of a per-unit subsidy, the government offered to pay for half the good's price, no matter the price:

• A) the wedge method would no longer work.
• B) instead of a parallel shift in demand, the subsidy should be modeled as a demand curve that is twice as steep.
• C) demand would be perfectly elastic.
• D) there would be no change in how we model the subsidy.

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Definitions:

Cash Flows

The total sum of money transfers both incoming and outgoing in a firm, majorly affecting its financial readiness.

Profitability Index (PI)

The present value of an investment’s future cash flows divided by its initial cost; also benefit/cost ratio.

Straight-Line Depreciation

A framework for spreading out the cost of a physical asset across its useful lifespan in identical yearly contributions.

Mutually Exclusive

Mutually exclusive is a statistical term describing two or more events that cannot occur simultaneously, often used in decision making or project selection scenarios.