Wednesday, December 11, 2013

Hospital Subsidy Decreases

In Prin. of Micro, one of the topics that I talk about is how economic welfare (well-being) changes with taxes and subsidies.  Here is an New York Times article on how government subsidies to hospitals are being reduced under the new health care law.  As you can see in the article - the subsidy reduces both the consumer and producers economic surplus but increases the governments surplus.  With per unit subsidies the supply and demand model predicts that that gains to the government would outweigh the combined losses to the consumer and producers; hence the general view of economists on subsidies.

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