12) In the market for smartphones, the price elasticity of supply is +0.8, and the price elasticity of demand is -1.2. At equilibrium, price is $800 and quantity is 400000.

(a) Assuming supply and demand are linear, reconstruct and draw the supply and demand curves. Label the intercepts. (b)To help consumers and phone-makers, the government proposes to subsidize smartphones by $80each. What are PB and PS after the subsidy? What is the new equilibrium quantity? Illustrate them on the same graph. (c) Calculate the change in consumer surplus, producer surplus, government expenditure, and dead weight loss and identify them on the graph.

Fig: 1