AL WISAM SCHOOL Graded Assignment: 26th – 30th April 2020

Subject: Economics (9708)

High School Title: Data Response Question 20

Name: Rayam Ali Year: 12 A 28/4/2020

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1. A subsidy is a payment made by government to produce to reduce the market
price. A unit subsidy is a specific sum per unit produced which is given to the
producer.Price inelastic os where a change in price has no effect on the quantity
demanded. Water is price inelastic it is something essential so even if the prices
increase the demand for water will change slightly.

2. 1) Original price of soap=0.03

Expected price for soap=0.21
Change in price of soap=0.21-0.03*100=600%
0.0
2) Original price of toothpaste=0.08
Expected price of toothpaste=0.32
Change in price of toothpaste=0.32-0.08*100=300%
0.08

It is clear after comparing the changes of price in soap by which is 600% and
the change of price in toothpaste by which is 300% it is shown that soap
prices will increase which makes it expensive to buy.

3. The information that is suggested is not sufficient to achieve the price the
government wanted,because people are buying soap and toothpaste from the shadow
market.These shows that the people are not satisfied before the remover of subsidies.

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4. Yes, it is more justifiable to subsidise potatoes,because soap is a merit good, it is a
necessary for everyone. Which will help to not spread diseases around and will lead
to an increase in the health cost.Therefore the government is keeping subsidies on
soap, so people can afford it. Subsidies on potatoes will give greater health benefits
because of its fibres which will decrease the risk of heart diseases.there may be an
increase in the demand of potatoes which will lead the price to rise for the
country,therefore the consumption by poor than rich subsiding them on the grounds
of equity.