Question

Oil is at its lowest market price in many years. Congress is considering a subsidy to the oil producers. As an economist for a member of Congress, you are ask to study whether they should support a subsidy. Why would you support (benefits) this government intervention? What impact (costs) do you expect from the subsidy that would cause you to not support the subsidy? Explain, in detail, an economic analysis behind your position.

Answer 1

Government intervention via subsidy has various beneficiary aspects,which can be supported.some are listed below-
1) Subsidy help to initiate more resources to the needed sectors.
2) According to the elasticity of demand and supply,the subsidy is distributed.
3) Subsidy have an impact on the fiscal budget as a heavy amount of money flow from budget as subsidy.
4) After receiving subsidy,a revised price is substantially lower than market price.
There are various impacts which cause us not to support the subsidy.some are-
1)subsidies may also lead to unreasonable economic effects.
2)these leads to unsuitable resource allocation,if imposed on a competitive market.
3) subsidies which are generalized often lead to wastage of resources.
4) subsidies have a tendency of self preserving
5) subsidies are sometimes mistargeted
6) subsidies do not have equal impact on environment and ecology.