Econ 1 - Subsidies

Question 1

Advantages of subsidies

Answer 1

1. greater social efficiency
2. reduction of negative externality.
3. reduces cost of capital investment
4. large subsidies can also be used to control inflation

Question 2

Disadvantages of subsidies

Answer 2

1. Have to be paid by the government
2. distortion of the market
3. time lags
4. encourages inefficiency