A few days ago
market supply and price?
Describe the effect on market supply and thus price (P*) if the bottled water: a) received a government subsidy because it was considered good for public health; b) had an excise tax imposed on its production because it was later found to be detrimental to public health
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A few days ago
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In situation A, the product is cheaper for the manufacturer to make because part of the cost is being paid (subsidised) by the government. They are able to produce more and the market supply is high, so the price to the consumer is cheaper.
In situation B, the product is more expensive to produce because they have production costs PLUS an additional tax. The market supply is decreased because it costs more for the company to produce. When the supply decreases, price to consumers will increase.
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