Government Intervention and Subsidies

Front

Explain the meaning of subsidies.

Back

A subsidy refers to assistance by the government to individuals or groups, such as firms or consumers, often in the form of cash payments or other financial support.

Front

Why do governments grant subsidies to firms?

Back

Governments grant subsidies to increase producers' revenues, make goods affordable for low-income consumers, encourage production of desirable goods, support industry growth, and promote exports.

Front

What are the impacts of subsidies on market outcomes?

Back

Subsidies increase the equilibrium quantity produced and consumed, lower the price paid by consumers, and raise the price received by producers.

Front

Discuss the consequences of providing a subsidy on consumers.

Back

Consumers benefit from a lower price and increased quantity purchased due to the subsidy.

Front

Discuss the consequences of providing a subsidy on producers.

Back

Producers benefit from receiving a higher price and producing a larger quantity, leading to increased revenues.

Front

What is the negative impact of subsidies on the government?

Back

The government incurs a financial burden due to subsidies, which may require reducing other expenditures, raising taxes, or running a budget deficit.

Front

How do subsidies affect society as a whole?

Back

Society may be worse off due to an overallocation of resources to the production of subsidized goods.

Front

What happens to foreign producers when a subsidy is granted on exports?

Back

Foreign producers may struggle to compete with lower prices of subsidized goods, negatively impacting their market.