<SUBSIDIES>

--THINK AHEAD--

"Below is a picture of one of my previous schools called 'Creative Secondary school, in HK. If we go to its website HERE, it is referred to as a 'Direct Subsidy School (DSS)', of which there are quite a few in HK.", "Can you think of why a school would recieve. subsidy and what this will do to the price of tuition fees?"

--DEFINITION--

SUBSIDIES refer to 'FIXED PAYMENTS PER UNIT OF OUTPUT MADE BY THE GOVERNMENT TO FIRMS', called 'SPECIFIC-SUBSIDIES'. In my example this oul mean the school receives a fixed amount of money from the government for every student it enrolls allowing it to offer a lower tuition rate.

SUBSIDIES (as studied in the IB course) refers to 'FIXED PAYMENTS PER UNIT OF OUTPUT MADE BY THE GOVERNMENT TO PRODUCERS', called 'SPECIFIC-SUBSIDIES'. In my example this would mean the school receives a fixed amount of money from the government for every student it enrolls, allowing it to offer a lower tuition rate.

--HOW CAN IT BE USED?--

--INCREASE INCOMES OF PRODUCERS--

TO INCREASE INCOMES OF PRODUCERS: Subsidies have the effect of increasing the revenues of producers. Therefore, governments often grant subsidies to particular producers whose revenues (and therefore incomes) they would like to support. This is most commonly done for producers of agricultural products.

--MAKE NECESSITIES AFFORDABLE--

TO MAKE CERTAIN GOODS (NECESSITIES) AFFORDABLE TO LOW-INCOME CONSUMERS: Subsidies have the effect of lowering the price of the good that is paid by consumers, thus making the good more affordable. For example, a government may wish to make a food staple (such as bread or rice) more affordable to low-income earners and can do so by granting a subsidy to producers of the good.

--ENCOURAGE MERIT GOODS --

TO ENCOURAGE PRODUCTION & CONSUMPTION OF MERIT GOODS that are believed to be desirable for consumers. A subsidy has the effect of increasing the quantity of a good produced and consumed. If a government wishes to encourage consumption of a good because it is considered to be desirable (for example, education, vaccinations), it can use a subsidy to achieve this.

--SUPPORT THE GROWTH OF 'SUNSET' INDUSTRIES--

TO SUPPORT THE GROWTH OF PARTICULAR INDUSTRIES: Since subsidies have the effect of increasing the quantity of output produced, if granted to firms in a particular industry, they support the growth of that industry. For example, subsidies to the solar industry are intended to promote the growth of solar power, subsidies to ethanol production are intended to promote the production of biofuels. Other examples include chemicals, textiles, steel, fossil fuels and many more.

--ENCOURAGE EXPORTS--

TO ENCOURAGE EXPORTS OF PARTICULAR GOODS: Since subsidies lower the price paid by consumers, they are sometimes granted on goods that are exported (sold to other countries), since lower export prices increase the quantity of exports. HOWEVER, later we will discover that this type of help is deemed 'unfair' in world trade matters and can create a 'misallocation of resources'

--MARKET IMPACTS--

--STAKEHOLDER IMPACTS--

--WELFARE IMPACTS--

--IMPORTANT TO KNOW (For IA?)--

"The HK government has launched a 'one-for-one' scheme that allows car owners to trade in their old petrol car to buy a new EV, and as a reward, they will waive a large portion of the new car registration tax."

"So the EV isn't sold at a lower price, but the total cost of owning it has lowered, so is this tax reduction considered a subsidy?" "If it is, how do you show its impact on the market in a diagram?"

"SKETCH IT!!"

--DIAGRAM: MARKET IMPACTS--

--DIAGRAM: WELFARE IMPACTS--

In this unit, we are assuming that the SUBSIDY, is CREATING INEFFICIENCY, and we can see below that the extra output created by the subsidy creates a higher cost to society than the benefit it

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