Suppose that the current price of a tablet device is $300 and that people are buying 1 million drives per year. The government decides to begin subsidizing the purchase of new tablet devices. The government believes that the appropriate price is $260 per tablet, so the program offers to send people cash for the difference between $260 and whatever the people pay for each tablet they buy.
a. If no consumers change their tablet-buying behavior, how much will this program cost the taxpayers?
b. Will the subsidy cause people to buy more, fewer, or the same number of tablets? Explain.
c. Suppose that people end up buying 1.5 million tablets once the program is in place. If the market price of tablets does not change, how much will this program cost the taxpayers?
d. Under the assumption that the program causes people to buy 1.5 million tablets and also causes the market price of tablets to rise to $320, how much will this program cost the taxpayers?