Subsidy – Govt. Policy

Study Materials

1. Textbook

 Chapter 6 

2. Read Lecture Slides

3. Extra Redings

  1. We can consider this to be a Consumption Subsidy.

Article – Pakistan to pay parents in new polio vaccination drive. Link:

Parents in Khyber  province to get 1,000 rupees for each child who completes vaccinations. How does this effect the goods (Polio vaccine) market ?

Discuss the cost of the subsidy, changes in consumer and producer surplus. 

(we’ll revisit this case when we study the topic on Externality)

2. Production Subsidy (Farm subsidy in Canada)

Article- Taxpayers oblivious to the cost of farm subsidies.


3. Production Subsidy (Sugar subsidy in the US)

Please check the video section for this case study. In the video I have taken news items from various sources and edited them into a short video.

Questions to consider: Can you show how consumers might gain from production subsidies?  However, on the flip side the same consumers are billed for the cost of the subsidy as tax payers. Compare the cost of the subsidy and consumer surplus to see if they overall gain or lose from production subsidy.

A fantastic quote from Barrie McKenna (the author of the 2nd article)

“Canadians and Americans alike are largely unaware of what their own governments spend on farmers, and what it costs them at the grocery store.

If they knew, the political love affair with farmers might fade.

Lecture Slides



A Case Study: Sugar Subsidy
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