A review of the topic of subsidies yields a wide range of perspectives. Many economists believe that subsidies, when used appropriately, are helpful because they can encourage market development and a more equitable distribution of benefits and resources in society. Others disagree, believing that subsidies distort markets, create inefficiencies, and misallocate capital.Despite this lack of agreement, developing an understanding of what subsidies are and how they are used is important for managers. Subsidies can impact key strategic decisions, such as market entry, target consumers, production levels, pricing decisions, resource allocations, and financial forecasts. The purpose of this note is to 1) describe what subsidies are and why they are used, 2) examine subsidy types, 3) address the difference between recipients and beneficiaries, and 4) note some of the effects of subsidies on markets, the environment, and society.
Note on the Role of Subsidies in a Market Economy
by: Ted London
Publication Date: February 1, 2009
Length: 11 pages
Product ID#: 1-428-648
Core Disciplines: Base of the Pyramid, Economics, Social Impact
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Teaching Objectives
After reading and discussing the material, students should:
- Define subsidies and explain how and why they are used.
- Analyze the differences between beneficiaries and recipients.
- Describe some of the effects of subsidies on markets, the environment, and society.