Answer to Question #84868 in Microeconomics for mahour

Question

discuss whether government should subsidise food prices

Answer 1

If we consider the subsidy as payments to producers of products per unit (the volume of manufactured goods), then such a subsidy makes sense in two cases.

1. A grant that is provided to manufacturers of essential goods. Thus, the total price of the consumer basket decreases, and this has a positive two-way effect. On the one hand, the psychological and financial condition of consumers improves (in the absence of other influential changes), on the other hand, producers do not lose interest in production, since with a relatively low price level, enterprises' profits do not decrease

2. 2. Subsidy to local producers. In other words, support for national, territorial production. Promotes the development of the territorial economy. Actual in the fight against the mass import of goods from countries with cheap labor