GI- Producer Subsidies

Question 1

What is a subsidy

Answer 1

A payment by the government to suppliers that reduce their costs of production and encourages them to increase output

Question 2

State subsidies are…

Answer 2

Financed from general taxation or by borrowing

Question 3

A subsidy causes what change on the graph

Answer 3

Supply curve to shift to the right

Question 4

The amount spent on a subsidy is equal to..

Answer 4

The subsidy per unit X output

Question 5

What is a direct subsidy

Answer 5

A subsidy to the consumer which has the effect of boosting demand - and outwards shift of demand

Question 6

What are the 5 types of producer subsidy

Answer 6

1. A guaranteed payment on the factor of a cost of a product - CAP
2. An input subsidy - subsidies the cost of inputs used in production
3. Government grants to cover losses made by a business
4. Bail outs
5. Financial assistance (loans and grants) for businesses setting up in areas of high unemployment

Question 7

Examples of government subsidies

Answer 7

• apprenticeship schemes
• aid to businesses
• subsidies for wind farm investment
• child care for working families

Question 8

How much will the government spend on a subsidy

Answer 8

It depends on the scale of the subsidy and the level of output

Question 9

The effect of subsidy on market prices for consumers:

Answer 9

• to what extent consumers will receive lower prices
• this depends on PED- the more inelastic the demand curve, the greater the consumers gain
• PED inelastic = consumer hands most (passed onto consumers in lower prices)
• PED elastic = main effect is to increase equilibrium quantity traded rather than lead to a lower price

Question 10

Economic and social justifications for subsidies

Answer 10

• help poorer families- food costs
• make health care treatments more affordable
• reduce the cost of training