Course

Subsidies

Instructor: Alex Tabarrok, George Mason University

Subsidies : Money given by the government to firms in order to keep an industry competitive and prices low. A subsidy is equivalent to a decrease in a firm's costs

Subsidies: Money given by the government to firms in order to keep an industry competitive and prices low. A subsidy is equivalent to a decrease in a firm's costs. This is from the video “The Supply Curve Shifts” in the Principles of Microeconomics course.

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Transcript

What about a subsidy? A subsidy is just the opposite of a tax. Instead of the government taking with every unit that you produce, the government gives some amount of money for every unit which is produced. A subsidy is equivalent to a decrease in the firm's costs and therefore it increases supply.


Go ahead and graph the effect on the supply curve of the subsidy to, say, fast food producers. Suppose it's aimed at helping them export overseas. What would be the effect of a subsidy on a supply curve for fast food producers? I'm not actually going to show you that. If you have any trouble graphing it, go back and look at the tax example. A subsidy is just a tax in reverse.

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