Subsidies

What is a subsidy

What is a subsidy

A sum of money given by the government to firms to encourage production and consumption of g/s with positive externalities.

Name one benefit of subsidies and evauate(to do with productitvity)

Ecourages firms to produce more g/s and become busier. This means that firms will need to hire more workers. This will lead to lower unemployment.

Depends on whether they use the money for labour more than capital or not.

Name one benefit of subsidies and evauate(to do wih inequality)

Subsides will reduce the price of g/s. This means that more people can affor it. This will lead to less inequality in society.

This depends on whether firms actually decide to lower their price or not.

Name one cost of subsidies and evaluate(to do with an opportunity cost)

Providing business with money can become really expensive.This means there is a big opportunity cost.

Depends on whether the benefits of creating more output and jobs will out weigh the financia cost.

Name one cost of subsidies and evaluate(to do with taxes)

Providing money means that taxes will have to go up to afford these subsidies. This means that households and firms will suffer in the future.

This depends on future governmet policies and if business will grow enough to help raise tax revenue.

Name one cost of subsidies and evaluate( to do with risks)

The business might not use the subsidies properly as they migh purchase unnecessary resources or take risky decisions. This means that the subsidy will be wasted and there won’t be as many positive externaities.

This depends on whether the government use extra monitoring of businesses to prevent this or not.