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97-handout - Economics of Government Subsidies AS...

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Economics of Government Subsidies AS Microeconomics November 2009
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Should we offer subsidies for these?
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Government subsidies Subsidies represent payments by the government to suppliers that have the effect of reducing their costs and encouraging them to increase output The effect of a government subsidy is to increase supply Other things being equal, a subsidy on a product will lower its price causing an expansion of market demand The total amount spent on the subsidy is equal to the subsidy per unit multiplied by total output
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