Subsdies(government Intervention)

Question 1

Definition of a subsidy

Answer 1

Any government support offered to producers/consumers

Question 2

Chain of reasoning of subsidy’s effect/how it works(on merit goods)

Answer 2

1)gov implements a Subsidy
2)Producers cost decrease/so supply shift right

3)Excess supply
4)Signals producers to decrease price

5)Demand increases/expands(same thing)
6)increases consumption of merit good/positive externalities

Question 3

What happens on a graph when a subsidy is used

Answer 3

Supply shifts right/down

Question 4

Where is the volume of a subsidy on a graph

Answer 4

In between p1 and p2 (Same lines as producer and consumer burden)

Question 5

Cons of using a subsisdy

Answer 5

1)Little effect if demand is inelastic
2)Larger government deficit (more spending,same revenue)

Question 6

Pros of subsidies

Answer 6

1)Improving health/nutrion

2)decreases unemployment
As: it increases supply

3)Stimulating Economic Growth:
Providing financial assistance(subside) to businesses in important sectors, subsidies can stimulate investment, innovation, and job creation, contributing to overall economic growth.