Per-Unit Subsidy
Definition
A Per-Unit Subsidy is a payment made by the government to producers for each unit of a good or service they produce. It aims to lower production costs and increase supply, ultimately benefiting consumers.
Analogy
Imagine you're selling lemonade at a lemonade stand, and your parents decide to give you $1 for every cup of lemonade you sell. This subsidy encourages you to make more lemonade because it reduces your costs and increases your profit. As a result, you can offer lower prices to customers, making them happier.
Related terms
Price Floor: A government-imposed minimum price set above the equilibrium price in order to support producers.
Producer Surplus: The difference between what producers are willing to sell a product for and what they actually receive.
Elasticity of Supply: A measure of how responsive the quantity supplied is to changes in price.
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