Financial matters

Benefit of the government subsidy program

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The benefit of the $20-per-textbook subsidy was split evenly between buyers and sellers. However, the actual distribution of this benefit will depend on the elasticity – always be shifted toward the more inelastic side of the market. Thus, the more inelastic
just as it does with a tax. The benefit of the subsidy will the supply, the larger the share of the benefit that will accrue to sellers. On the other hand, ties of supply and demand the more inelastic the demand, the larger the share of the benefit that will accrue to buyers. Using our earlier examples from the posts on taxation, consumers would be the main beneficiary of a subsidy on gasoline (a good for which the demand is relatively inelastic, and supply elastic), while suppliers would be the main beneficiary of a subsidy on luxury boats (a good for which demand is relatively elastic, and supply inelastic). Economic analysis indicates that the true benefit of a subsidy will: (1)be the same regardless of whether the subsidy is granted to the buyers or sellers in a market, and (2) will depend on the elasticities of supply and demand.