Subsidy Diagram

12Jan11

Above is the diagram of Subsidy, an amount of money paid by the government to a firm per unit output, for improving output and supporting domestic product to compete over foreign product. The initial domestic quantity of goods provided is Q1, and the quantity of foreign goods in the domestic market is Q1-Q2. By having a subsidy supporting domestic firms, more goods can be provided at lower price. This shifts the domestic supply curve (Sd) to Sd+subsidy. Then the quantity of domestic goods increases from Q1 to Q3, and the imported products will decrease from Q1-Q2 to Q3-Q2.

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