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Flashcards in Subsidies Deck (19)
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1

subsidy

payment made by government to producers to pay part of the cost of production and increase output of good

2

Why might subsidies be implemented?

lower market price to encourage consumption - positive externality associated with good offset cost of production to expand output - diversify economy and create employment better compete with foreign competitors

3

deadweight welfare loss

D

4

total subsidy

B + C + D + E + F + G

5

consumer portion of subsidy

E + F + G

6

producer portion of subsidy

B + C

7

more elastic PED --- the relative benefit to producers and --- benefit to consumers, ceteris paribus

greater less

8

less elastic the PED the --- the relative benefit to producers and --- benefit to consumers, ceteris paribus

less greater

9

the more elastic the PED the --- the deadweight welfare loss

greater

10

the more elastic the PES the --- relative benefit to consumers and --- benefit to producers, ceteris paribus

greater less

11

the less elastic the PES the --- the relative benefit to producers and --- the benefit to consumers, ceteris paribus

greater less

12

the more elastic the PES the --- the deadweight welfare loss

greater

13

PED = undefined (perfectly elastic)

producers have entire benefit of subsidy

14

PED = 0 (perfectly inelastic)

consumers have entire benefit of the subsidy

15

PES = undefined (perfectly elastic)

consumers have entire benefit of subsidy

16

PES = 0 (perfectly inelastic)

producers have entire benefit of subsidy

17

Does the imposition of subsidy affect the demand curve?

no

18

How does a subsidy change the supply curve

Qs = m(P + s) + A

19

how does supply curve shift with subsidy?

right by m*s