Subsidies

Question 1

Def

Answer 1

Sum of money given by the government in order to encourage the production of a good.

Question 2

Works by

Answer 2

Decrease cost of production. At any given price supplier earn more profit.
More incentive to supply shifing curve to the right s1 to s2
Decreases equilibrium price from p1 to p2. Extention of demand q1 to q2.
Increase quantity to social optimum
Correcting underproduction underconsumption