Government intervention through subsidies

What is a subsidy?

A form of government support offered to producers and occasionally consumers

3 examples of subsidies

Biofuel subsidies- renewable energy

Aprentership schemes

aid to business making a loss

draw a subsidy diagram

big rectangle is the government cost

benefit to consumers is P1 → P2

benefit to producers is P1 → P3

how to calculate subsidy per unit

price producers recieve - price consumers pay

how to work out total subsidy

subsidy per unit x quantity after subisdy

Why do governments intervene by giving subsidies?

Economic social and political reasons

What are the justifications for subsidies?

Help poor families

Encourage investment

Protect jobs

Make some health care treatments

Reduce cost of training

Achieve a more equitable income

Reduce some external costs of transport

Encourage arts and other cultural services

what are the problems of subsidies

Are they effective in meeting their aims

Will a subsidy affect productivity/ efficient, firms become dependant

How much does a subsidy cost and who benefits from it

Does the subsidy help to correct a market failure