subsidies

• Subsidy

  Grant given by governments to firms in order to decrease their cost of production
• Subsidies (they)

  1. increase consumer surplus
  2. increase producer surplus
  3. increase in revenue
• Reasons for subsidies

  1. Decrease costs of production and prices of goods that have external benefits to society (decreased costs of production increase production) eg vaccinations
  2. Improves environment by decreasing pollution and decreasing negative externalities eg electric cars
• Evaluations for subsidies

  1. PED - time lag from government provision of subsidy to its benefit. eg infrastructure
  2. Opportunity cost for the government- could spend it elsewhere likeNHS. It can decrease waiting times therefore increasing patient utility
• On a subsidy diagram you can show

  1. producer surplus
  2. producer share of subsidy
  3. consumer surplus
  4. consumer share of subsidy
  5. revenue
  6. whole subsidy
• subsidy's are shown by

  an outward shift