Demesne7
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Hey guys, I'm currently writing notes on subsidies and have stumbled upon two different diagrams on subsidies upon looking through revision guides, websites etc. My question is, which diagram am I expected to use in which context? Basically what makes these two different and if an exam question on subsidies were to come up how do I know if I am expected to use the first or second?

Sorry if this is a painfully obvious question, i'm just really confused and my teacher isn't helping much.

Thanks in advance! x
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bigbattygal
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Use the second one, the edexcel specimen paper shows the supply and demand diagram on the mark scheme. The second one also easily shows cost of the subsidy and the incident of subsidy
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KevinLonge
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(Original post by Demesne7)
Hey guys, I'm currently writing notes on subsidies and have stumbled upon two different diagrams on subsidies upon looking through revision guides, websites etc. My question is, which diagram am I expected to use in which context? Basically what makes these two different and if an exam question on subsidies were to come up how do I know if I am expected to use the first or second?

Sorry if this is a painfully obvious question, i'm just really confused and my teacher isn't helping much.

Thanks in advance! x
I would probably use the right diagram (that's what they tend to want in exams).
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rhysjohnwilliams
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Agreed, use the second one, this is the most simplest to get your point across: the subsidy shifts the supply curve rightwards which increases output and reduces prices which is why subsidies are implemented by governments.
The first diagram is more a cost-benefit-analysis / welfare diagram, the MPC=MSC curve is the supply curve and hence we have two because of the additional subsidy.
The MPB (marginal private benefit) curve is the demand curve whilst the marginal social benefit curve is higher showing that we would want to implement a subsidy because we want to reach this position, something which wouldn't occur in a free market. Hence both diagrams are showing the same thing, but unless you fully understand the first diagram then don't bother.

Hope this helps,
Rhys
www.learneconomicsonline.com
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Demesne7
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Thank you all for your answers, really appreciate it!
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Demesne7
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(Original post by rasclerhys)
Agreed, use the second one, this is the most simplest to get your point across: the subsidy shifts the supply curve rightwards which increases output and reduces prices which is why subsidies are implemented by governments.
The first diagram is more a cost-benefit-analysis / welfare diagram, the MPC=MSC curve is the supply curve and hence we have two because of the additional subsidy.
The MPB (marginal private benefit) curve is the demand curve whilst the marginal social benefit curve is higher showing that we would want to implement a subsidy because we want to reach this position, something which wouldn't occur in a free market. Hence both diagrams are showing the same thing, but unless you fully understand the first diagram then don't bother.

Hope this helps,
Rhys
www.learneconomicsonline.com
Oh I see, so would the first one be used when talking about government subsidies on positive externalities? Thanks for the reply btw
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BasicMistake
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(Original post by Demesne7)
Oh I see, so would the first one be used when talking about government subsidies on positive externalities? Thanks for the reply btw
That's what I would do.

One other thing, it might be worth drawing the incidences of the subsidy on the diagram on the right in the exam to show that you really know your stuff.
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Demesne7
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(Original post by BasicMistake)
That's what I would do.

One other thing, it might be worth drawing the incidences of the subsidy on the diagram on the right in the exam to show that you really know your stuff.
That's true. Thank you
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