4.4 - production and export subsidies

production subsidies definition

payments per unit of output by the government to domestic firms that compete with imports

production subsidy graph

winning stakeholders in production subsidies:

• domestic producers

  • receive Pw+s

  • production expands Q1 → Q3

• domestic employment increases

neutral impacts in production subsidies:

• consumers

  • price stays at Pw

  • Qd stays the same

loosing stakeholders in production subsidies

• government budget

  • expense = (Pw+s = Pw) x Q3

• taxpayers

• increased efficiency in production

• exporting countries

  • can export less goods

• global misallocation of resources

export subsidies definition

subsidy is paid for each unit of the good that is exported

export subsidy graph

winning stakeholders of export subsidies

• domestic producers

  • receive Pw+s

  • sell bigger quality

• domestic employment increases

loosing stakeholders in export subsidies

• consumers

  • pay higher price

  • smaller quality

• government budget

• taxpayers

• domestic income distribution worsens

• increased inefficiency in production

• foreign producers