Question

Please show me what a subsidy does to a supply/demand graph and the DWL. I have a graph drawn but I do not know what it actually means

Answer 1

Ans) Subsidy is given by the government when it wants to encourage the production of something.

Subsidy increases the price received by the sellers and reduces the price paid by the buyers. That is it increases both consumer and producer surplus.

ellers price received by sellers price paid by buyers h u @ / surplus consumer Q, Q2 + sub

price received by sellers price paid by buyers producer surplus Q, Q2 Inst

price received by sellers price paid by buyers deadweightloss Q, Q2 subsidy SUB