subsidy - Subsidy Preview A subsidy is just a negative tax...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Subsidy
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Preview A subsidy is just a negative tax. Show the effect of a production subsidy. Effect on equilibrium price and quantity. Effect on consumer and producer surplus. Welfare consequences.
Background image of page 2
Subsidy and Taxation Tax: every time a good was sold, the producer had to pay a tax of T. Essentially, the marginal cost of producing each unit has increased by T. Subsidy, every time a good was sold, the producer received a payment of T. Essentially, the marginal cost of producing each unit has decreased by T.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Production Subsidy P Q D S Q* 1) Supply increased P* S` T
Background image of page 4
Production Subsidy P Q D S Q* 1) Supply increased 1) Quantity supplied increased P* S` T
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Production Subsidy P Q D S Q* 1) Supply increased 1) Quantity supplied increased 1) Equilibrium price decreased. P* S` T
Background image of page 6
P Q D S Q* P*+ T 1) Supply increased 1) Quantity supplied increased 1) Equilibrium price decreased. 1) Since the firm gets T for every
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 14

subsidy - Subsidy Preview A subsidy is just a negative tax...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online