Suppose bread is subsidized in a small Caribbean nation with a high percentage of citizens who live in poverty. The subsidy is paid to suppliers of bread
by the government in the amount of 50 pesos per loaf. In the absence of the subsidy the price of bread would be 100 pesos per loaf. Assuming that the supply
of bread is perfectly elastic at the 100 peso price what is the effect of the subsidy on the market equilibrium price of bread? Draw a graph and explain the
excess burden of the subsidy. Assuming no externalities why will subsidy result in more than the efficient amount of bread being produced? Create a
graph.