Subsidies

Question 1

What is a subsidy?

Answer 1

Subsidy- money given by government to firms to encourage ⬆️ production by ⬇️ production costs

Question 2

How does a subsidy affect producers & consumers?

Answer 2

Subsidy directly benefits producers & indirectly benefits consumers:
- Producers- receive subsidy-> ⬇️ production costs
- Consumers- ⬆️ production-> ⬇️ price of 🚘 or 🧹

Question 3

How do you calculate the value of a subsidy?

Answer 3

Value of subsidy = area of consumer subsidy + area of producer subsidy
OR
Value of subsidy = unit rate of subsidy (y-axis length of consumer & producer subsidy) x quantity

Question 4

What are 4 key things to remember when doing calculations involving subsides or calculations involving disarms in general?

Answer 4

1) PRODUCER SUBSIDY = TOP
2) CONSUMER SUBSIDY = BOTTOM
3) ALWAYS VERTICAL DISTANCE
4) ALWAYS FIND AREA TO SECOND QUANTITY (EVEN IF PRODUCER & CONSUMER SUBSIDY NOT SEPARATED BY EQUILIBRIUM)