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The Indian government has introduced a subsidy on domestic cooking gas cylinders in the city of Mumbai - Edexcel - A-Level Economics A - Question 3 - 2017 - Paper 1
Question 3
The Indian government has introduced a subsidy on domestic cooking gas cylinders in the city of Mumbai. The diagram below shows the effect following the introduction... show full transcript
Worked Solution & Example Answer:The Indian government has introduced a subsidy on domestic cooking gas cylinders in the city of Mumbai - Edexcel - A-Level Economics A - Question 3 - 2017 - Paper 1
Step 1
Calculate the total domestic cooking gas subsidy paid daily by the Indian government.
Answer
To calculate the total domestic cooking gas subsidy, we first determine the difference in price before and after the subsidy.
From the diagram:
- Price before subsidy at equilibrium (point S): 1023 Rupees
- Price after subsidy (point S1): 526 Rupees
The daily quantity of gas cylinders is given as 227 million.
The subsidy per cylinder is:
y = 1023 - 526 = 497 Rupees
Total subsidy = 497 Rupees * 227 million = 112,399 million Rupees per day.
Step 2
Calculate the percentage share of the total subsidy received by consumers.
Answer
The total subsidy can be divided between consumers and producers.
Assuming the total subsidy calculated is 112,399 million Rupees:
- Consumers receive a subsidy equal to the price drop multiplied by the quantity they purchase.
From the price change, consumers save:
Subsidy for consumers = 497 Rupees * 13 million = 6,461 million Rupees.
Percentage share for consumers = (6,461 / 112,399) * 100 ≈ 5.75%.
Step 3
Calculate the percentage share of the total subsidy received by producers.
Answer
Using the same total subsidy of 112,399 million Rupees:
- Producers receive the remaining part of the total subsidy because total subsidies = subsidy to consumers + subsidy to producers.
Assuming the total subsidy received by producers is 112,399 - 6,461 = 105,938 million Rupees.
Percentage share for producers = (105,938 / 112,399) * 100 ≈ 94.25%.
Step 4