How does a subsidy impact a market?
A subsidy typically impacts a market by increasing the supply of the good or service in question. An increase in supply will lead (all other things being equal) to a reduction in the equilibrium price and an increase in the equilibrium quantity exchanged. In other words, more of the product will be bought and sold at a lower price.
Subsidies do this because they encourage producers to produce a given good. They reduce the effective price of producing the good. This means that the producer gets more profit at any given sale price. This makes producers want to produce more, thus increasing supply.
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