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Subsidies - Coggle Diagram
Subsidies
Purpose
Prevent decline
of the industry
Prevent P ↑
Hire more labour
Encourage production
of merit G
↓ cost for exports - more competitive
Encourage investing
in R&D
NOT for domestic goods
will cushion inefficiency
Effects
↓ P
↑ Q
↑ Consumer surplus
↑ Producer surplus
Evaluation of its issues
Expensive
Opportunity cost
Gov forgoes production
of essential goods
How subsidy is spent by firms
Correct level is difficult to set
Lack of info
What's the right level of
merit G that's good for society?
D is P inelastic
D doesn't ↑ even if P ↓
due to non-price factors
eg. inconvenient
public transport
AS curve shift →
↕ dist shows amt
of subsidy per unit
Financial assistance paid to a business or economic sector