Understanding Subsidies and their Impact on Markets

The video explains the concept of subsidies, their impact on supply and demand, and how they benefit both consumers and producers. It discusses examples like the UK rail industry and EU agriculture. The video also covers the cost of subsidies to governments and how these costs are calculated. The elasticity of demand plays a crucial role in determining the distribution of benefits between consumers and producers.

Which industry in the UK has been significantly supported by government subsidies to control prices?

• Telecommunications industry

• Rail industry

• Pharmaceutical industry

• Automobile industry

What is the immediate effect of a per-unit subsidy on the supply curve?

• It shifts the supply curve upward.

• It shifts the supply curve downward.

• It makes the supply curve steeper.

• It makes the supply curve flatter.

How does a decrease in price due to a subsidy affect the demand curve?

• It causes a movement up the demand curve.

• It shifts the demand curve to the left.

• It shifts the demand curve to the right.

• It causes a movement down the demand curve.

Who benefits from the subsidy when the price falls from P1 to P2?

• Only producers

• Both producers and consumers

• Neither producers nor consumers

• Only consumers

What factor determines the share of benefits between consumers and producers in a subsidized market?

• The total amount of subsidy

• The elasticity of the supply curve

• The elasticity of the demand curve

• The initial market price