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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 determine the total domestic cooking gas subsidy, we can look at the difference in price before and after the subsidy and multiply it by the quantity of gas cylinders sold.
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Identify Prices:
- Price before subsidy: 1023 Rupees (at S)
- Price after subsidy: 526 Rupees (at D)
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Calculate the Subsidy per Cylinder:
ext{Subsidy Per Cylinder} = 1023 - 526 = 497 ext{ Rupees}
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Determine Quantity Sold (Daily):
- At the equilibrium quantity, we find approximately 1.8 million gas cylinders are sold per day.
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Total Subsidy Calculation:
ext{Total Subsidy} = ext{Subsidy Per Cylinder} imes ext{Quantity} = 497 imes 1.8 imes 10^6 = 896.6 ext{ million Rupees}
Thus, the total domestic cooking gas subsidy paid daily by the government is approximately 896.6 million Rupees.
Step 2
Calculate the percentage share of the total subsidy received by consumers.
Answer
The percentage share of the total subsidy received by consumers can be calculated using the following formula:
ext{Percentage Share} = rac{ ext{Subsidy Received by Consumers}}{ ext{Total Subsidy}} imes 100
Given that consumers receive the full subsidy amount:
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Total Subsidy: Approximately 896.6 million Rupees (calculated in part (a)).
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Subsidy to Consumers: This is equal to the total subsidy since they are the primary beneficiaries. Hence:
ext{Percentage Share} = rac{896.6}{896.6} imes 100 = 100%
Therefore, consumers receive 100% of the total subsidy.
Step 3
Calculate the percentage share of the total subsidy received by producers.
Answer
Since the producers do not directly benefit from this subsidy (as the subsidy is primarily for consumers), we can deduce:
- Total Subsidy: 896.6 million Rupees (from part (a)).
- Subsidy to Producers: This would typically be 0 Rupees.
Thus, the percentage share for producers is:
ext{Percentage Share} = rac{0}{896.6} imes 100 = 0\%
Therefore, producers receive 0% of the total subsidy.
Step 4