Chad paid $30 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet. He was willing to pay $45. When Andrew’s friend Nick learns that Andrew bought a potato cannon, he asks Andrew if he will sell it for $60, and Andrew agrees. Nick is thrilled, since he would have paid Andrew up to $80 for the cannon. Andrew is also delighted. Determine the consumer surplus from the original purchase and the additional surplus generated by the resale of the cannon.How would a $2,000 subsidy on the purchase of a new hybrid vehicle impact the consumer surplus and producer surplus in the hybrid market? Use a supply and demand diagram to illustrate your answer. Does the subsidy create deadweight loss?
