
Subpart (a):
The impact of subsidy on the resources.
Subpart (a):

Explanation of Solution
The market is a structure where there are buyers and sellers who sell and the exchange of goods and services between the buyers and sellers. The
When the government provides the subsidies, it reduces the cost of production of the firm and as a result of the minimized cost of production, the firm would be able to earn a higher level of profit in the economy. When a firm enjoys the profit, it would attract the resources towards it. Thus, it can be concluded that when the government subsidizes an activity, the resources such as the labor, machinery, and the bank lending will tend to gravitate towards the activity that is subsidized and tend to gravitate away from the activity that is not subsidized.
Concept introduction:
Resources of production: The resources of production are the labor, machines, raw materials, and so on, which are necessary to transform the inputs into the finished goods and services.
Subsidy: Subsidies are the sum of money granted by the government to the needy firms or individuals to meet the expenses of the firm or the individual in order to keep the price of the good or service lower.
Subpart (b):
The impact of subsidy on the resources.
Subpart (b):

Explanation of Solution
The market is a structure where there are buyers and sellers who sell and the exchange of goods and services between the buyers and sellers. The price is determined by the interaction of the demand and supply in the market. The goods and services are produced using the factors of production. The main resources are the labor, machineries as well as the bank lending which helps the firm to convert the inputs into the finished final goods and services for the consumption.
The tax is a compulsory and unilateral payment made by the people towards the government which acts as the major source of revenue to the government. There are different types of taxes such as the income tax, property tax, professional tax, and so on. When the government taxes a commodity, it would reduce the revenue received from the sale of the commodity and as a result, the profit generated from the sale of the commodity would fall. The resources such as the labor, machinery and the bank lending tend to be attracted towards the profit which means, when the government taxes a commodity, the resources would tend to gravitate away from the commodity that is taxed and to gravitate towards the commodity that is not taxed.
Concept introduction:
Resources of production: The resources of production are the labor, machines, raw materials, and so on, which are necessary to transform the inputs into the finished goods and services.
Subsidy: Subsidies are the sum of money granted by the government to the needy firms or individuals to meet the expenses of the firm or the individual in order to keep the price of the good or service lower.
Want to see more full solutions like this?
Chapter 6 Solutions
Modern Principles of Economics
- The problem statement never defines whether the loan had compound or simple interest. The readings indicate that the diference in those will be learned later, and the formula used fro this answer was not in the chapter. Should it be assumbed that a simple interest caluclaton should be used?arrow_forwardNot use ai pleasearrow_forwardNot use ai pleasearrow_forward
- Not use ai pleasearrow_forwardSuppose there is a new preventative treatment for a common disease. If you take the preventative treatment, it reduces the average amount of time you spend sick by 10%. The optimal combination of Z (home goods) and H (health goods). both may increase both may increase or one may stay the same while the other increases. both may decrease H may increase; Z may not change Z may increase; H may decreasearrow_forwardIn the Bismarck system,. may arise. neither selection both adverse and risk selection ☑ adverse selection risk selectionarrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education





