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What is the difference between implicit and explicit subsidies?

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Guest Tuvshee

I have to write a commentary for my IA. And I found an article which mentions implicit subsidies. I tried looking it up, but can't find anything. WHat exactly are implicit subsidies?

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Since no one is really responding, its likely that no one in the community knows, haven't seen your message or just aren't willing to help you. I don't know either, but you should try asking your teacher about it; if not I'd suggest you find a new article. You don't want to misinterpret things and lose easy marks.

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An explicit subsidy is a subsidy that the government makes clear will go to a firm. For example, if you produce x units of wheat, then the government will pay you $x*y, where y is the subsidy (or the amount of money paid per unit you produce).

An implicit subsidy is when the government suppresses supply, and hence raises price. This means the firms in the industry are able to charge higher prices and therefore make higher profits, but it usually doesn't cost the government as much.

If you do a search for "implicit" on this page it gives some good examples.

Edited by Desmond

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