3. Continuing on with the previous question, the regional council has chosen to implement a combination ofregui'ation and pricing. They'Ve regulated by banning use ofdirty wood and coal burners - households have to dispose of their old, dirty burners. The Council have a list of clean-burning 'compliant' burners. The council also offers a subsidy of $1500 on purchase of "a selection of approved clean heating appliances including heat pumps, pellet burners, ued and un-flued gas heaterslfires, and approved wood burners." The graph below shows conditions in the heatpump market prior to the subsidy. 3500 Oo Qlt a. Show on the graph how the $1500 subsidy affects the market. b. Discuss the 'incidence' ofthe subsidy. c. Identify on the graph the change in consumer surplus. d. The graph you drew should suggest an inefficiency from the subsidy where MC > MV. Identify the magnitude of this deadweight loss on the diagram. e. Are there other considerations that might off-set this loss, e.g. is there a public goods rationale for the subsidy