A subsidy is a financial payment made by government

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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 certain actions. quota 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.

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