Subsidies OCR AS Economics: Markets in Action

  • Created by: Matt Lowe
  • Created on: 03-04-13 14:43


  • A decrease in price solves under-consumption.
  • Acts as an initiative to businesses to produce more.
  • Reduces the cost of production.
  • Allows resources to be used for other purposes.
  • Promotes expansion.
  • Increases a business's competitive edge as they can charge lower prices.
  • Increases social benefit when applied to merit goods such as education.


  • It is difficult to measure the gains in social benefits, if there are any at all.
  • They are ineffective for inelastic goods.
  • Can't be funded forever; entirely dependent on the government.
  • Can limit motivation as it reduces a business's dependence.
  • Will most probably come from a raise in taxes.
  • Businesses may become reliant on subsidies as a method of funding.
  • It is difficult to decide who receives a subsidy.
  • It can produce a consumer surplus.
  • It encourages new businesses into the industry even if the demand does not require them.



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