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Questions and Answers
What is a subsidy?
What is a subsidy?
What is a specific subsidy?
What is a specific subsidy?
A fixed amount per unit of output
How do subsidies impact the allocation of resources?
How do subsidies impact the allocation of resources?
They affect relative prices and lower production costs, leading to increased supply and consumption.
Why do governments subsidize socially beneficial products?
Why do governments subsidize socially beneficial products?
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What is one reason governments subsidize industries?
What is one reason governments subsidize industries?
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What do governments do if imports exceed exports?
What do governments do if imports exceed exports?
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How do consumers benefit from subsidies?
How do consumers benefit from subsidies?
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What is a consequence of subsidies for producers?
What is a consequence of subsidies for producers?
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How do subsidies affect workers?
How do subsidies affect workers?
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What is a negative consequence of subsidies for the government?
What is a negative consequence of subsidies for the government?
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How does society fare as a result of subsidies?
How does society fare as a result of subsidies?
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Study Notes
Subsidy Overview
- A subsidy is a government payment to firms or individuals aimed at increasing the purchase or supply of specific goods.
Specific Subsidy
- Defined as a fixed monetary amount allocated per unit of output.
Impact on Resource Allocation
- Subsidies alter resource allocation by affecting relative prices, which change signals and incentives.
- They reduce production costs for firms, leading to increased supply and a downward shift of the supply curve.
- Higher prices received by producers also contribute to the downward curve shift, resulting in greater consumption and production.
Reasons for Government Subsidies - Socially Beneficial Products
- Subsidies promote the consumption and production of goods deemed socially beneficial, like vaccinations.
Reasons for Government Subsidies - Support Industries
- Governments use subsidies to assist industries by lowering production costs and enhancing revenue.
Reasons for Government Subsidies - Balance of Payments Deficit
- To address a trade imbalance, where imports exceed exports, governments may subsidize goods to lower prices in international markets.
Consequences of Subsidies - Consumers
- Consumers benefit as subsidies lower prices and increase the availability of goods in the market.
Consequences of Subsidies - Producers
- Producers gain from increased revenue due to higher market supply and reduced production costs.
Consequences of Subsidies - Workers
- Employment rises as increased output leads to a greater demand for workers.
Consequences of Subsidies - Government
- Governments face negative budget impacts as subsidies increase outlays, potentially leading to reduced spending in other areas (opportunity cost).
Consequences of Subsidies - Society
- Overallocation of resources to subsidized goods can lead to societal downsides, indicating inefficiencies in resource distribution.
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Description
Test your understanding of subsidies with these flashcards. The quiz covers key definitions and implications of subsidies, including specific types and their impact on resource allocation. Perfect for economics students looking to reinforce their knowledge.
