BEA Week 6

BEA

Subsidy

A payment from the government to producers that reduces production costs and increases supply.

Supply Curve Shift

When a subsidy is paid, the supply curve shifts down (right) by the amount of the subsidy.

Benefits of Subsidies

Subsidies decrease prices of goods, benefiting both consumers and producers in the market.

Taxpayers and Subsidies

Subsidies are effectively paid from taxes a government receives from its taxpayers, limiting the government's ability to pay subsidies.

Indirect Taxes

Producers pay this to the government on each good they produce, decreasing supply by the amount of tax.

Indirect Taxes Purpose

To create income for the government or discourage consumption of harmful products like alcohol and cigarettes.

Why governments pay subsidies

• Encourage production of a good or service e.g. healthcare, education

• Increase competitiveness of exports e.g. EU agriculture subsidies

• Increase quantity demanded of a good e.g. EVs

• Keeps workers employed e.g. Covid-19 Wage Subsidy

rāhui

temporary restriction placed on an area, resource, or body of water, for conservation or social reasons

market

any place where 2 or more parties can meet to facilitate the exchanging of goods & services

market forces

law of demand & LoSupply

price mechanism

signal to consumers & producers, guiding quantity supplied & quantity demanded

Pe is when

Qd = Qs

market disequilibrium

when quantity supplied ≠ quantity demanded
i.e. Qs > Qd or Qd > Qs

shortage

when Qd > Qs of a good or service

surplus

when Qs > Qd of a good or service

choices for consumers if there is a shortage

accept it, leave the market, compete with other consumers

choices for producers if there is a surplus

accept it, leave the market, or compete with other suppliers