Answer to Question #210278 in Microeconomics for Achuma

Question

What are the costs and consequences of providing the subsidies and welfare

Answer 1

A subsidy means the government pays part of the cost of products or services. The effect is to shift the supply curve to the right, leading to lower prices and higher quantity demanded. The consequences can be very positive though, as poverty could otherwise lead to riots and violence, and the benefits of integrating the people in need into the society are big. On the other hand, too generous and easy to obtain support can lead to the fact that people would choose to stay on welfare rather than work.