b) Subsidies

a) supply and demand analysis, elasticities, and: the impact of indirect taxes on consumers, producers, and government; the incidence of indirect taxes on consumers and producers; the impact of subsidies on consumers, producers, and government; the area that represents the producer subsidy and consumer subsidy

subsidies

• decrease consumer spending on a good or service

• increase producer profit from a good or service

• decreases government revenue

subsidy on a price inelastic good

• s = subsidy

• P = producer subsidy

• C = consumer subsidy

• P + C = cost of the subsidy to the government

subsidy on a price elastic good

• s = subsidy

• P = producer subsidy

• C = consumer subsidy

• P + C = cost of the subsidy to the government