Subsidies Flashcards
What are producer subsidies?
Payments to producers by the government to reduce the costs of production eg: subsidies for renewable energy which shifts supply to the right
What are consumer subsidies?
Payments to consumers to allow them to purchase more of a good/service eg: childcare vouchers which shifts demand right
What are advantages of producer subsidies?
Corrects market failures eg: positive externalities, information failures that lead to under provision
Encourages the consumption of goods that are good for us eg: fruits or healthcare
Encourages firms to invest and innovate
Helps protect producer incomes and jobs
Supports those on lower incomes
Helps tackle climate change
Can help make exports more competitive
What are disadvantages of producer subsidies?
Cost to the government (opportunity cost)
Firms may become over reliant on subsidy
Firms have less incentive to be efficient and productive
Firms may distribute extra profit to shareholders rather than re invest
May cause fraud or corruption
Government failure
