Consider the effect of a $1 per pound subsidy paid to sellers of organic peaches. Assume the supply elasticity is 2.

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Consider the effect of a $1 per pound subsidy paid to sellers of organic peaches. Assume the supply elasticity is 2.0 and the demand is completely inelastic at 1000 units (price elasticity of demand is zero). Explain and illustrate your calculations with words and a diagram. (I want numbers.)

(a) What is the effect of the $1 per pound subsidy on the price paid by buyers?

(b) What is the effect on profits of organic peach producers?

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