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( Subsidies)
In economics, a subsidy (also known as a subvention) is a form of financial assistance paid to a business or economic sector. A subsidy can be used to support businesses that might otherwise fail, or to encourage activities that would otherwise not take place. Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs.[1] Financial assistance in the form of a subsidy may come from one's government, but the term subsidy may also refer to assistance granted by others, such as individuals or non-governmental institutions, although these would be more commonly described as charity. In standard supply and demand curve diagrams, a subsidy will shift either the demand curve up or the supply curve down. A subsidy that increases production will tend to result in a lower price, while a subsidy that increases demand will tend to result in an increase in price. Both cases result in a new economic equilibrium. Therefore it is essential to consider elasticity when estimating the total costs of a planned subsidy it equals the subsidy per unit (difference between market price and subsidized price) times the new equilibrium quantity. One category of goods suffers less from this effect Public goods are — once created — in ample supply and the total costs of subsidies remain constant regardless of the number of consumers; depending on the form of the subsidy, however, the number of producers demanding their share of benefits may still rise and drive costs up.
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