17- Subsidies

Question 1

What is a subsidy?

Answer 1

A subsidy is a financial grant given by government to encourage the production or consumption of a particular good or service

Question 2

Examples of subsidies

Answer 2

A subsidy could be given on essential items such as bread or housing. Or, they may be given to firms that employ disadvantaged workers such as the long term unemployed or people with disabilities or firms manufacturing domestically produced goods to help them be more competitive than imported goods.

Question 3

What will a subsidy to the supply curve?

Answer 3

It will shift it right. The quantity produced will increase and the price paid by consumers will fall.

Question 4

Impact of a subsidy on consumer surplus?

Answer 4

Consumer surplus rises as the price that consumers pay has fallen and output has risen.

Question 5

Impact of subsidy on producer surplus?

Answer 5

Producer surplus rises because the price consumers pay + subsidy is higher than the price at the previous market equilibrium

Question 6

Impact of subsidy on governments?

Answer 6

Producer and consumer surplus rise. However, the government must pay the size of the per unit subsidy X total output. Governments must pay for subsidies using tax revenues or government borrowing.

Question 7

What is a subsidies specific job?

Answer 7

A subsidy usually leads to an increase in the output sold of a good or service, it shift supply to the right. This is because a subsidy lowers the cost of production

Question 8

Use of subsidies in poorer countries?

Answer 8

Some governments in poorer countries give subsidies to the producers of necessary foods such as bread or rice, to enable the poor to live on very low wages

Question 9

Why might the UK government subsidie production of energy from wind and solar sources?

Answer 9

To fix the market failure of non renewable sources/pollution and the negative externalities associated with this problem