Understanding Subsidies and their Impact on Markets

The video explains how subsidies are used by governments to boost production and consumption in various industries. It covers examples like the UK rail industry and EU agriculture. The impact of subsidies on supply curves, market prices, and the distribution of benefits between consumers and producers is discussed. The video also highlights the cost of subsidies to governments and the importance of demand elasticity in determining the effects of subsidies.

Which industry in the UK has been significantly supported by government subsidies to manage fares?

• Automobile industry

• Rail industry

• Aerospace industry

• Telecommunications industry

What is the immediate effect of a per unit subsidy on the supply curve?

• It makes the supply curve flatter.

• It makes the supply curve steeper.

• It shifts the supply curve downward.

• It shifts the supply curve upward.

How does a decrease in price due to a subsidy affect the demand curve?

• It shifts the demand curve to the left.

• It causes a movement down the demand curve.

• It causes a movement up the demand curve.

• It shifts the demand curve to the right.

Who benefits from the subsidy when the price falls from P1 to P2?

• Only consumers

• Only producers

• Neither producers nor consumers

• Both producers and consumers

What factor determines the share of subsidy benefits between consumers and producers?

• The elasticity of the supply curve

• The elasticity of the demand curve

• The initial market price

• The total market size