Subsidy receipts, spending and distribution
| English | 中文 | Pinyin |
|---|---|---|
| public expenditure/ˈpʌblɪk ekˈspendɪtʃə/ | 公共支出 | gōng gòng zhī chū |
| subsidy incidence/ˈsʌbsɪdi ˈɪnsɪdəns/ | 补贴收益归宿 | bǔ tiē shōu yì guī sù |
A decision you can investigate
- A public payment supports suppliers, while competition can also lower the price buyers pay.
- The recipient of the cheque need not receive the entire economic benefit.
Build the explanation
- A per-unit subsidy creates a reverse wedge: seller receipt Ps equals buyer price Pb plus subsidy s. Supply responds to the receipt; demand responds to the paid price. Public expenditure 公共支出 is s times eligible post-subsidy output.
- The benefit split depends on relative responsiveness. Less elastic demand can give consumers more of the price benefit; less elastic supply can leave more with producers. Market power, eligibility and contract terms can change the simple model.
Work through the evidence
- Use the original Qd=120−2P and Qs=2P, with P=30,Q=60. Subsidy 12 gives Ps=Pb+12. Set 120−2Pb=2(Pb+12): Pb=24, Ps=36,Q=72.
- Buyers save 6 per unit and sellers gain 6 in receipt. Public cost = 12 × 72 = 864. CS=½ × 36 × 72=1296 and PS=½ × 36 × 72=1296. Net of the public payment, gains are 2592−864=1728, below original 1800 in this no-external-benefit model. More trades alone do not establish greater net welfare.
What price does the buyer pay after this subsidy?
Demand and subsidized supply intersect at buyer price 24.
What is public cost under the stated eligibility?
All 72 units receive 12: 864.
A subsidy received by sellers necessarily benefits sellers alone.
Market adjustment can lower buyers’ prices as well as raise sellers’ receipts.
Test the limits
- The equal benefit split is specific to the symmetric curves. A subsidy addressing external benefits may move output closer to the social optimum instead of creating inefficient extra output.
- Public funds have alternative uses. Funding, targeting, fraud risk and administrative costs matter. A producer subsidy is not the same as handing every consumer the same cash sum; show both prices and the output actually supported.
Why are larger private surplus areas insufficient to prove a net welfare gain?
The comparison must include funding and external effects, not just private gains.
Apply and explain your answer
- Why is a subsidy paid on all 72 units costlier than paying only for the 12 extra units?
- The stated eligibility covers all post-subsidy output, including units that would already have been supplied.
Match the terms to their meanings.
Use each term for its stated economic relationship.
Use the terms precisely
- subsidy incidence 补贴收益归宿: The distribution of a subsidy’s economic benefit between market participants.
- public expenditure: Spending by government on services, transfers or other activity.
Use the original Qd=120−2P and Qs=2P, with P=30,Q=60. Subsidy 12 gives Ps=Pb+12. Set 120−2Pb=2(Pb+12): Pb=24, Ps=36,Q=72. Buyers save 6 per unit and sellers gain 6 in receipt. Public cost = 12 × 72 = 864. CS=½ × 36 × 72=1296 and PS=½ × 36 × 72=1296. Net of the public payment, gains are 2592−864=1728, below original 1800 in this no-external-benefit model. More trades alone do not establish greater net welfare.
The equal benefit split is specific to the symmetric curves. A subsidy addressing external benefits may move output closer to the social optimum instead of creating inefficient extra output. Public funds have alternative uses. Funding, targeting, fraud risk and administrative costs matter. A producer subsidy is not the same as handing every consumer the same cash sum; show both prices and the output actually supported.
A per-unit subsidy creates a reverse wedge: seller receipt Ps equals buyer price Pb plus subsidy s. Supply responds to the receipt; demand responds to the paid price. Public expenditure is s times eligible post-subsidy output.