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Question: the australian government believes that maintaining a viable airline industry...

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The Australian Government believes that maintaining a viable airline industry is essential to the long term sustainability of the country’s tourism - so in order to support them in a post covid travel environment they are proposing to subsidise the purchase of tickets. The demand for tickets is given by Qd = 5000 − 10P and the supply is Qs = 2000 + 10P.

(a) Solve for the equilibrium price and quantity in this market, and calculate producer and consumer surplus. 

(b) Suppose the government offers a $100 per ticket as a subsidy, recalculate the equilibrium price and quantity to reflect the subsidy. What will be the price paid by ticket buyers be and the price received by sellers? 

(c) How much will the subsidy program cost the government and what will be its net effect on the total surplus?

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