Subsidy

• Subsidies are moneygrams given to firms by the government to reduce their cost of production and to encourage an increase in output.
• Subsidies are a form of government intervention with two core reasons: to solve market failures and to encourage more consumption and production of goods and services that are beneficial to the whole of society.
• Governments around the world often subsidize vaccinations, health care, education, public transportation, energy efficiency, and work training programs.
• Subsidies can also be used to encourage greater affordability of necessity goods and services.
• A subsidy reduces the price in the market and can be very helpful for low-income households to access the market and afford essential goods and services.
• A subsidy reduces cost of production for firms and shifts the supply curve to the right.
• The vertical distance between the two supply curves is always the value of the subsidy per unit.
• A subsidy will shift the supply curve downwards and the new equilibrium will be at a higher price and a higher quantity.
• A subsidy reduces price in the market and increases quantity, doing exactly what the government aims to do.
• The overall cost of the government of a subsidy can be worked out in the same way as government revenue from an indirect tax.
• Governments will also be concerned about how subsidies are being used, as producers may be taking advantage of the subsidies and not investing in the business.
• Producers' revenues increased significantly to Dcq20.
• Governments like subsidies if their two main aims are being achieved, if they're solving market failures, and if they're encouraging greater affordability in helping out low-income households.
• The government's intervention in the market through subsidies creates a deadweight welfare loss, represented by the triangle ABC.
• Before the subsidy, consumers were buying quantity Q1 at the price of P1, but now because of the subsidies, consumers can buy quantity Q1 at a lower price of P2.
• The entire consumer savings can be shown by the area P1P1P2AE.
• Producers and workers love subsidies as they lead to a significant increase in revenue and producer surplus.
• Governments will be concerned about how expensive the subsidy is and the long-term funding concerns.
• Consumers are benefiting to an extent with some consumer savings taking place.
• Consumers generally like subsidies as prices fall and consumer surplus increases, but they are concerned about how the subsidy is going to be funded over time.
• The cost of the government of a subsidy is calculated by working out the vertical distance between the two supply curves, which is the value of the subsidy per unit, and multiplying that by all the units up to the quantity sold.
• The revenue from a subsidy is calculated by multiplying the price before the subsidy by the quantity after the subsidy.
• The revenue from consumers is the price after the subsidy, but the subsidy is going to producers, so the box of government cost also represents producer revenue.
• The total revenue from a subsidy is the price before the subsidy plus the revenue from consumers.