Question

In a market with a subsidy, those who receive the relative benefit of the subsidy would be the same people who would bear the higher burden of the tax if one was implemented. Explain what is wrong with this statement.

Answer 1

Tax is an amount of money that the government takes from either producers or consumers for each unit of a good that is bought and sold. A Subsidy is an amount of money that the government pays out to either producers or consumers for each unit of a good that is bought and sold.

Subsidy is a benefit given by the government to groups or individuals, usually in the form of a cash payment or a tax reduction. A subsidy is often given to remove some type of burden, and it is often considered to be in the overall interest of the public.In simple, consumer pays out of pocket for the good is equal to the amount that the producer receives minus the amount of the subsidy.

So,we can say above statement is wrong as tax incidence and subsidy beneficiaries are different. Subsidy were given only after tax levied on other not the same people.