Subsidies

• What is a subsidy?

  A government grant provided to businesses to lower the costs of production.
• What are some examples of subsidies?

  . technology

  . education

  . AI

  . ferlough
• Why does the government hand out subsidies?

  . helps keep businesses running (funds)

  . increases output as there’s lower costs of production

  . benefits the government as educated people can go on to work

  . encourages production in certain sectors e.g. solar

  . increases consumption
• Why might subsidies not be a good idea?

  . uses up a lot of the government spending budget

  . opportunity cost for government

  . firms become over-reliant

  . encourage firms to enter - saturated market

  . depends on the size of the subsidy
• What is total spending on the subsidy equal to in relation to the subsidy graph?

  Total spending on the subsidy is equal to the subsidy per unit multiplied by the level of output.
• What does the general diagram for a subsidy look like?

  DIAGRAM BELOW: