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03-11-2022
Advanced Placement (AP)

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Assume that bread and butter are complementary goods. The government begins to subsidize the production of wheat, which is an input in the production of bread. For each of the following markets, draw correctly labeled supply and demand graphs and show the effect of the subsidy on the equilibrium price and quantity in the short run. The wheat market The bread market The butter market If the demand for bread is price elastic, how will total revenues for the bread producers change as a result of the government subsidy?

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