Micro Foundations · intermediate
What moves on the Supply & Demand diagram
A per-unit subsidysubsidyA government payment per unit that lowers effective production costs and expands output. shifts supply right by the subsidy amount, lowering the buyer price and raising quantity.
Start at equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change..
The government pays producers $s per unit sold.
Effective production cost falls by s at every quantity. S shifts down/right by the subsidysubsidyA government payment per unit that lowers effective production costs and expands output..
New equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change.: buyers pay less, sellers effectively receive more, quantity rises.
The benefit is shared by elasticityelasticityHow strongly one variable responds to another, usually quantity's percentage response to a price change., and the government bears the fiscal cost of s × Q.
Examiners ask this as: subsidy, producer subsidy, government pays producers, solar rebate, farm subsidy.
Other scenarios on Supply & Demand