Unformatted text preview: ave the opposite effect of
taxes. A subsidy is a financial payment
made by government for certain actions.
Suppose the government subsidizes the
production of corn by paying corn farmers
$2 for every bushel of corn they produce.
Farmers will then want to produce more
corn at every price, which means the supply curve of corn shifts rightward. Removal
of the subsidy causes the supply curve to
shift to the left, back to its position prior to
the subsidy. A quota decreases supply, so the supply
curve shifts to the left. The elimination of a
quota causes the supply curve to shift rightward to its original position. Number of Sellers
If more sellers begin producing a particular good, perhaps because of high profits,
supply increases and the supply curve shifts
to the right. If some sellers stop producing a
particular good, perhaps because of losses,
the supply curve shifts to the left. Quotas subsidy
A financial payment
made by government for
A legal limit on the number of units of a foreignproduced good (impo...
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This document was uploaded on 01/16/2014.
- Winter '14