Part ii) Supposethat the sports shoe market is a monopolistically competitive market in longrun equilibrium. The National Coalitionfor Stylish Sneaks, an industry run lobbying group, convinces thegovernment that wearing sports shoes encouragesexercise and should be subsidized (despite there being no actual positiveexternality). This industry starts in along run equilibrium.a) Show the shortrun effects of this graphically being sure to label your price, quantity,consumer surplus, profits, and deadweight loss in the short run. Briefly explain the SR effects of the subsidyfrom your graph on profits, quantity, price, and how any shifts occur. In general in the SR, what effect does thesubsidy have on DWL?b) Show the longrun effects of this graphically being sure to label your price, quantity,consumer surplus, profits, and deadweight loss in the long run. Briefly explainthe LR effects of the subsidy from your graph on profits, quantity, price, andhow any shifts occur. In general in theLR, what effect does the subsidy have on DWL?
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