Econ 201 1st Edition Lecture 19Outline of Last Lecture 1.government policies~Outline of Current Lecture 1.government policies~Current LectureAnalysis for Simple Subsidy• Subsidies are, in a sense, the opposite of a tax. – Use lessons from tax analysis to analyze the impacts of a subsidy. • A tax imposed on sellers raises their cost.– Market effect is shown by shifting the Supply curve upward. • A subsidy paid to sellers reduces their cost.– Market effect is shown by shifting the Supply curve downward. • A tax imposed on buyers reduces the amount they will pay sellers.– Market effect is shown by shifting the Demand curve downward. • A subsidy paid to buyers increases the amount they will pay sellers.– Market effect is shown by shifting the Demand curve upward. Analysis for Simple Subsidy ~ g in $/unitThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.• A tax drives a wedge between PB and PS – Raises the price buyers pay. Lowers the price sellers receive. – The difference is the tax rate: T = PB – PS• A subsidy drives a wedge between PS and PB– Lowers the price buyers pay. Raises the price sellers receive. – The difference is the subsidy rate: g = PS – PB• A tax reduces the quantity exchanged: QT<Q*• A subsidy increases the quantity exchanged:
View Full Document
Unlocking...