1. Use the graph below to answers the following question:
A) How much producer surplus exists if the good is privately produced? Show workings.
B) If the government subsidizes the good to reach the socially optimum equilibrium point, what is the amount of total surplus? Show workings.
C) The government decides to subsidize demand to reach the socially optimal quantity. How much does producer surplus increase by after the good is subsidized? Show workings.
