Economics Subsidies

A subsidy is any form of government support - financial or otherwise - offered to producers and (occasionally) consumers

Examples: Apprenticeship Schemes, Aid to businesses making losses, and child care for working families.

Subsidy Diagram

Inelastic market demand: Subsidy has a larger effect in the new equilibrium price

Elastic market demand: Subsidy has a stronger effect on the new equilibrium quantity

Subsidy

Advantages	Disadvantages
Increase output	Opportunity cost (e.g. could spend the money on healthcare)
Support firms —> protect jobs	Increase government debt —> fiscal deficit → taxes increase
Decreases price → inc consumer surplus