Government Intervention - Subsidy Flashcards
1
Q
Subsidy
A
Assistance by the government to individuals or groups of individuals, such as firms, consumers, industries or sectors of an economy
2
Q
Forms of subisdies
A
- direct cash payments
- low interest free loans
- provision of goods and services by the gov below market price
2
Q
AIm of gov. when granting subsidies
A
- Prevent industries form failing
- Support producers income
- Form of protection against imports (due to lower costs and lower prices that arise from subsidy
2
Q
Reasons for subidies
A
- To increase revenue of producers
- To make basic necessities and merit goods more affordable to low-income consumers
- encourage production & consumption of a particular good
- to support growth of a particular industry
- encourage exports of particular products
- correct positive externalities = improving allocative efficiency
2
Q
Why subsidies encourage export of a product
A
Subsidies lower the price paid by consumers and are sometimes granted on goods that are exported (sold overseas)
=> because lower prices on export goods will increase the quantity of exports out of the country
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