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Unformatted text preview: Subsidies • hen the government offers a subsidy it pays When the government offers a subsidy it pays for exchange in a market. • We’ll look at just look at per ‐ unit subsidies. ’s the opposite of per ‐ nit taxes It s the opposite of per unit taxes. – The price received by sellers is greater than the rice paid by buyers. price paid by buyers. • Examples: Green energy – Ethanol, Solar, etc. p gy , , 6 Per ‐ nit Subsidy A Per Unit Subsidy P S D Q 7 he Bottom Line The Bottom Line Intervention in markets often leads to DWL and unintended consequences. ut recall unregulated markets are only efficient But, recall unregulated markets are only efficient when • Buyers and sellers are well ‐ informed. • Markets are perfectly competitive • The supply curve captures all of the costs (and enefits) to production benefits) to production. • The demand curve captures all of the benefits (and costs) to consumption. 8...
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- Fall '08
- Deadweight Loss, low price elasticity, Herb Newhouse