subsidy

Question 1

what is a subsidy?

Answer 1

cash payments from the government to individuals, consumers, producers, industries, etc.

Question 2

subsidy real life

Answer 2

Indonesian government subsidizing fuel to make it more affordable for people
2023 Nz government placed a 4% increase on tuition subsidies for degree level and over schools
2023 ford gained 1.7 billion dollars from the michigan government to fund their electric vehicle plant

Question 3

effect of subsidy on consumers?

Answer 3

Consumers’ expenditure on the good changes

Consumers are better off after the subsidy because they pay a lower price (Pc < P) and consume a greater amount of the good (Qsb > Q).

Question 3

reasons for subsidy

Answer 3

to increase revenues of producers.
to make basic necessities and merit goods more affordable to low-income consumers.
to encourage the consumption of a good or service that is considered beneficial to consumers.
to support growth of a particular industry.
to encourage exports and protect national industry from foreign competition.
to correct positive externalities, improving the allocation of resources.

Question 4

effect of subsidy on producers

Answer 4

Producers arebetter off as they sell a greater amount of the good (Qsb > Q*) and receive a higher final price (Pp > Pc) after receiving the subsidy from the government. increased revenue

Question 5

effect of subsidy on government

Answer 5

The government is now worse off, as it has a cost because of the subsidy. The cost of the subsidy is equal to (Pp – Pc) × Qsb, which is the difference between the two supply curves at the new equilibrium level of output in the market.

The government has an opportunity cost as the funds granted in subsidies cannot be used to provide public goods and services or for any other government expenditure.

Question 6

effect of subsidy on workers

Answer 6

The market has become bigger because more units of output are consumed and produced after the subsidy (Qsb > Q*). If a greater amount of goods are sold, then more workers are needed to produce them. Therefore, the subsidy may lead to higher employment in this market.

Workers are better off if more people are employed.