2.3 The determinants of the supply of goods and services

Question 1

What is a subsidy ?

Answer 1

A money grant to firms to reduce costs of production and encourage output

Question 2

What are 3 things to include in a subsidy essay ?

Answer 2

1. define the term and explain its aims
2. draw an S&D diagram (show changes in price / quantity and the new and old equlibrium)
3. Explain the effect of subsidy of somethings consumption

Question 2

what are subsidies used to do?

Answer 2

1. to solve makret failures
2. increase affordability

Question 3

what is indirect tax ?

Answer 3

It is an extra charge on products which increases production costs or price for consumers

Question 4

what are the aims of indirect tax ?

Answer 4

1. Generate tax revenue for a government
2. Discourage consumption of ‘harmful’ products