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Business
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| Number of pages / Number of words: |
6 / 1604 |
Essay's paper body
This leads to domestic producers having a bigger slice of the market. The shaded area is the benefit from taxes that the government receives (Parry & Kemp 2002, p. 95).
Subsidies are grants from the government to domestic producers. They aim to reduce the cost of production for the producer so they can be more competitive in the international market...
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The effect of a subsidy granted to domestic producers is showed in the following diagram. The world price is at OF. Total demand is Oq2 of which Oq1 is locally supplied and q1q2 is imported. If subsidies are put in place the supply curve would shift to the right. A subsidy has the same effect of decreasing costs...
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