A lump-sum subsidy refers to a fixed amount of money given by the government directly to producers or consumers as financial assistance.
Imagine you want to start your own lemonade stand business. The government decides to support small businesses like yours by giving you $1000 upfront as financial aid. This lump-sum subsidy acts as an initial boost for your business operations.
Production Subsidy: A production subsidy provides financial assistance per unit produced rather than as a fixed amount.
Consumer Surplus: Lump-sum subsidies can increase consumer surplus by reducing the overall cost of purchasing goods or services.
Deadweight Loss: If subsidies are not properly targeted or efficient, they can lead to deadweight loss in the economy.
Study guides for the entire semester
200k practice questions
Glossary of 50k key terms - memorize important vocab
© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.