Answer to Question #194961 in Microeconomics for Rev

Question

If the UK government paid a fixed subsidy to existing restaurants for each day on which they are open for business during the next three months this policy would increase the profits of restaurant owners and not change the price of restaurant meals.

Answer 1

Subsidy is the financial aid the UK government is offering to restaurants to meet their production cost.The aim of UK government offering this aid is to help safeguard consumers from increased prices of meals in restaurants. Its meet that added cost enabling restaurant to charge the normal price for their meals.Even though the prices of meals remain the same , the owners of restaurants benefit from this government aid. This scenario happens mostly during the times of economic crisis like corona virus pandemic especially after lock down.