Question

What is the impact of the removal of the subsidy on domestic consumers?

What is the impact of the removal of the subsidy on domestic consumers?

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Answer #1

Subsidy reduces the price that the consumers are paying for a particular product on which the subsidy is provided. In case subsidy on a particular on a particular product is removed, it will reduce its supply. This reduction in the supply will be seen as a leftward shift of the supply curve which increases the price for the domestic consumers for the particular good. This subsidy is going to reduce the consumer welfare but this is beneficial for the market because subsidies are generally wasteful.

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