Thursday, February 23, 2012

Subsidy: Cash for Clunkers

Cash for clunkers is a relatively nice example of a per unit subsidy. The New York Times has a nice piece on the end of the program, and some of the economic consequences of the program. Notice that with the per unit subsidy, both consumers and producers are better off, but not so the government (or the taxpayer). Also notice that with the per unit subsidy, that firms have to increase production (movement up the supply curve) due to the lower price paid by the consumer.

No comments: