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Questions › IIT JAM › IIT JAM 2021 › Q52
2 marksMicroeconomics › Perfect competition › Price ceilings, floors and subsidiesHardabout 3 min

IIT JAM 2021 Question 52: Perfect competition

A vaccine has supply q=14+5pq = 14 + 5pq=14+5p and demand q=329−5pq = 329 - 5pq=329−5p. The government sets a maximum price of Rs. 25 and subsidizes sellers per unit so the market clears at the ceiling. The total subsidy expenditure is Rs. _______ (in integer).

Answer and worked solution

Answer: 2652

At the ceiling price 252525, quantity demanded is 329−5(25)=204329 - 5(25) = 204329−5(25)=204. For sellers to supply 204204204 they need a price psp_sps​ with 14+5ps=20414 + 5p_s = 20414+5ps​=204, so ps=38p_s = 38ps​=38.

The per-unit subsidy is 38−25=1338 - 25 = 1338−25=13, over 204204204 units, giving total subsidy 13×204=265213 \times 204 = 265213×204=2652. The answer is 265226522652.

Plain-text version

A vaccine has supply q = 14 + 5p and demand q = 329 - 5p. The government sets a maximum price of Rs. 25 and subsidizes sellers per unit so the market clears at the ceiling. The total subsidy expenditure is Rs. _ (in integer).

Perfect competition has come up 115 times in 7 exams since 2006.

What this question tests

This question is on Price ceilings, floors and subsidies, part of Perfect competition in Microeconomics.

What binding and non-binding price controls and per-unit subsidies do to quantity, shortage and cost.

TestStop has 13 past-paper questions on this subtopic; the nearest in year are below.

  • GATE 2023 · Q57The demand and supply functions for a commodity are given by: D(p) = 10-2p and S(p) = -2+p where D(p) and…
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