How Do You Calculate The Vaule Of A Subsidy? (Solved)

How do I calculate the subsidy amount?

  • As the eligible employer, you are responsible for calculating the subsidy manually. Determine the total number of eligible employees employed from March 18 to June 19, 2020. Multiply the number of eligible employees by the maximum of $1,375 per eligible employee.

What is a subsidy value?

A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Consumer/consumption subsidies commonly reduce the price of goods and services to the consumer.

Do we add subsidy to the basic price or subtract it?

Gross domestic product (GDP) is equal to the sum of the gross value added of all the institutional units resident in a territory engaged in production (that is, gross value added at basic prices) plus any taxes, minus any subsidies, on products not included in the value of their outputs.

What is a subsidy example?

Examples of Subsidies. Subsidies are a payment from government to private entities, usually to ensure firms stay in business and protect jobs. Examples include agriculture, electric cars, green energy, oil and gas, green energy, transport, and welfare payments.

How does a subsidy work?

Government subsidies help an industry by paying for part of the cost of the production of a good or service by offering tax credits or reimbursements or by paying for part of the cost a consumer would pay to purchase a good or service.

What is cash subsidy?

The cash subsidy is a direct money transfer to the intended recipient’s account or the company by the government. Farm exporters, LPG subsidy, are examples of a cash subsidy.

How do I calculate consumer surplus?

While taking into consideration the demand and supply curvesDemand CurveThe demand curve is a line graph utilized in economics, that shows how many units of a good or service will be purchased at various prices, the formula for consumer surplus is CS = ½ (base) (height). In our example, CS = ½ (40) (70-50) = 400.

How does subsidy affect supply equation?

The effect of a specific per unit subsidy is to shift the supply curve vertically downwards by the amount of the subsidy. In this case the new supply curve will be parallel to the original. Depending on elasticity of demand, the effect is to reduce price and increase output.

What will be the total cost of the subsidy to the government?

The buyers, who now pay a lower price, gain area B in consumer surplus. However, the total cost of the subsidy to the government is Z*Qn, which is equal to areas A+B+C. The subsidy thus costs C dollars more than the benefits it delivers. It is pareto inefficient, and area C is deadweight loss.

Is a subsidy a loan?

Subsidized Loans are loans for undergraduate students with financial need, as determined by your cost of attendance minus expected family contribution and other financial aid (such as grants or scholarships). Subsidized Loans do not accrue interest while you are in school at least half-time or during deferment periods.

How do you get a government subsidy?

Want to Avail Government Subsidies? Provide Aadhaar and Get it Easily

  1. Direct Benefit Transfer (DBT)
  2. Pradhan Mantri Ujjwala Yojana.
  3. Emeritus Fellowship.
  4. Pradhan Mantri Awas Yojana – Gramin (PMAY-G)
  5. Cash Transfer of Food Subsidy Rules, 2015.
  6. Aam Aadmi Bima Yojana.
  7. Maternity Benefit Programme.

Do government subsidies have to be paid back?

Grants are sums that usually do not have to be repaid but are to be used for defined purposes. Subsidies, on the other hand, refer to direct contributions, tax breaks and other special assistance that governments provide businesses to offset operating costs over a lengthy time period.

Why do governments give subsidies?

When market imperfections exist, it is the right of governments to use subsidies to palliate those that are ill-advantaged. For example, in a low-monetized economy, subsidies can achieve more efficient social policy – it may be easier to slash food staple prices to consumers than to make social transfers.

Calculating effect of a subsidy

Assume that the demand function is linear and has the form: Qd = 120 – 5P. Qs = 30 + 10 and a linear supply curve of the following form: Answer the following questions based on your knowledge of demand and supply functions. Once you have completed the questions, click on the link below to see how your answers stack up against one another.

  1. Calculate the amounts required and provided for prices ranging from $3 to $15 per unit of measure. Make a graph of these numbers to show the demand and supply curves for the product in question. Make use of simultaneous equations to determine the equilibrium price and production output
  2. Figure out where the new supply curve should be drawn on the original supply and demand diagram if the government provides a $3 subsidy per unit. Calculate the new equilibrium price and quantity by referring to the diagram
  3. Make a rough estimate of how much money the government has spent on the subsidies. Calculate the income collected by the companies as follows:


A subsidy is a sum of money granted directly to businesses by the government in order to stimulate the production and consumption of goods and services. A unit subsidy is a specified payment that is paid to the producer for each unit of product produced. In the case of a particular per unit subsidy, the result is to push the supply curve vertically downwards by the amount of the subsidy received. As a result, the new supply curve will be parallel to the previous supply curve in this situation.

The incidence of a subsidy

The economic incidence of a subsidy tells who benefits from the subsidy and who does not benefit from the subsidy. The legal incidence, on the other hand, specifies who the subsidy is meant to benefit in accordance with the law. The subsidy per unit is represented by A – B in the graphic below, while the additional amount consumed is represented by Q1. The price the customer pays, on the other hand, does not decrease by the whole amount of the subsidy — instead, it decreases from P to P1. As a result, even though the objective of the subsidy is to decrease the price to the customer by the whole amount of the subsidy, the producer reaps part of the benefits in the form of more money that they may keep.

Each unit of benefit for the consumer is denoted by the letter P – P1, and the total gain for the customer is denoted by the letter PFBP1.

CABP1 is the area that represents the total cost of the subsidy to the government.

Calculating the impact of a per-unit Subsidy given to Consumers?

This is an excellent question, and economists have a somewhat satisfactory response. Let us first assume that the market is in equilibrium at a price of $P*$ and that no intervention is taking place. If there is a value-added tax of $t$, we have a new equilibrium with a consumer price $P* c$ and a producer price $P* s$, as shown in the diagram. There is little doubt that these prices are no longer comparable, and the difference between the two is not always equal to the amount of the tax. Subsidies can be thought of as a form of negative taxation.

  1. P* c=P*+rhocdot t$ is the relationship for a modest enough tax to satisfy the condition.
  2. Obviously, if it is 0, the customer does not have to pay any tax at all.
  3. It is necessary to understand that the pass through rate in fully competitive marketplaces is dependent on the elasticity of demand, $varepsilon D$, and the elasticity of supply, $varepsilon S$, respectively.
  4. In this context, the proverb “the more inelastic side of the market bears the weight of a tax” comes into play.
  5. A large portion of the time, (b) may be met by assuming that the marginal cost of manufacturing remains constant.

In imperfectly competitive environments, the pass through rate is determined by the behavior of the firms as well as the curve of demand. For further information, I recommend reading Weyl and Fabinger’s “Pass through as an economic instrument,” published in the Journal of Political Economy in 2013.

Formula for calculating subsidy

All DHOAS subsidy levels are computed using the same DHOAS formula, which is used for all DHOAS subsidies. Over the course of 25 years, it amounts to 37.5 percent of the median interest charge on the subsidised component of your house loan (this is regardless of your actual home loan period or home loan rate). The interest incurred on all DHOAS home loans is calculated using a median interest rate derived from information obtained from CANSTAR Pty Ltd. and Australian Home Lenders. It is not necessary to utilize the exact interest rate on your house loan.

Under this maximum, the interest rate that is applied may fluctuate in response to changes in interest rates, which may have an influence on the amount of your monthly subsidy payments.

Median interest rate

Each month, on the tenth-last working day of the month, the Department of Veterans Affairs (DVA) evaluates the median interest rate used to compute the DHOAS subsidies for the previous month. The amount of your subsidy payment will fluctuate if the interest rate increases. In the next month, the DHOAS home loan receives the modified subsidy payment for that month, which is deposited at the beginning of the following month. CANSTAR Pty Ltd provides us with information on the median interest rate on the tenth-last working day of the current month, which we use to analyze the current month’s interest rates.

It is placed into your home loan account on the first business day of each month, unless otherwise specified.

4.7 Taxes and Subsidies – Principles of Microeconomics

Topic 4: Supply and Demand in Practical Situations, Part 2

Learning Objectives

You will be able to do the following by the conclusion of this section:

  • Distinguish between the incidence of legal and economic taxes. Be familiar with how to depict taxes using the shifting curve and the wedge approach
  • Understand how a tax affects the quantity and price of a product
  • Give an explanation of how taxes and subsidies result in deadweight loss.

Despite the fact that taxes are not the most popular policy, they are frequently required. By changing the curve and utilizing the wedge approach, we will be able to better understand how taxes influence the market and how to mitigate their effects. First and foremost, we must distinguish between the incidence of legal taxation and the incidence of economic taxation.

Legal versus Economic Tax Incidence

When the government establishes a tax, it must choose whether the tax will be levied against producers or against consumers. This is referred to as “legal tax incidence.” Consumer-facing taxes such as the Government Sales Tax (GST) and Provincial Sales Tax (PST) are among the most well-known types of taxes (PST). In addition, the government imposes levies on manufacturers, such as the gas tax, which reduces their profit margins. When identifying who is effected by a tax, the legal incidence of the tax is essentially immaterial to the decision.

In the same way, a tax on consumers would eventually diminish the quantity required and the excess produced by producers.

Due to the fact that economic tax incidence, or who really pays in the new equilibrium for the incidence of the tax, is determined by how the market responds to the price shift rather than by legal incidence, this is a necessary condition for determining economic tax incidence.

Tax – Shifting the Curve

As discussed in Topic 3, we discovered that the supply curve was formed from a firm’s Marginal Cost and that variations in the supply curve were produced by any changes in the market that resulted in an increase in MC across the board. This is no different in the case of a tax. From the point of view of the producer, every tax imposed on them is just an increase in the marginal costs per unit produced. Examine the oil market once more to see how a tax would have an impact on the market. Suppose the government imposes a $3 gas tax on producers (a legitimate tax incidence on producers), the supply curve will move up by $3 as a result of the tax.

  • It should be noted that producers no longer earn $5; instead, they now receive only $2, as $3 must be given to the government.
  • Imagine that the legal incidence of the tax is placed on the customers, as seen in Figure 4.7a.
  • For example, if customers are only ready to pay $4/gallon for 4 million gallons of oil but are aware that they would be charged a $3/gallon tax at the pump, they will only purchase 4 million gallons of oil if the ticket price is just $1.
  • The $2 that was paid to the producers before taxes will be returned to them.
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Tax – The Wedge Method

Another way to look at taxes is via the lens of the wedge approach. As a result of this strategy, it is recognized that who pays the tax is ultimately immaterial. As opposed to this, the wedge approach explains how a tax creates a wedge between the price consumers pay and the revenue producers get that is proportional to the amount of tax charged. As seen in the illustration below, finding the new equilibrium is as simple as finding a $3 wedge between the two curves. Only $0.7 is tried for the first wedge, followed by $1.5, and so on until the $3.0 tax is discovered.

Market Surplus

In the same way that price and quantity restrictions must be compared before and after a price change in order to properly appreciate the impact of a tax policy on surplus, one must compare the market surplus before and after a tax policy change. Figure 4.7d (right)


The market surplus prior to the tax has not been indicated, although this should be a normal part of the process.

Make certain you understand how to obtain the values shown below: Consumer surplus is equal to $4 million. 8 million dollars in producer surplus Market Surplus is equal to $12 million.


Based on this illustration, the market surplus following implementation of policy may be computed. Consumer Surplus (in the blue area) equals $1 million dollars. Producer Surplus (in the red area) equals $2 million. Revenue from the government (in the green area) = $6 million Market Surplus is equal to $9 million.

Why is Government Included in Market Surplus

We did not include any mention of government revenue in our earlier examples dealing with market excess since the government was not participating in our market at the time of writing. Keep in mind that market excess is our yardstick for measuring efficiency. Without consideration for the government, this statistic would be of limited use. For the sake of this example, a million-dollar loss to the government would be considered efficient if it resulted in a one-dollar benefit to the general public.

  • As was the case with the quota, a reduction in quantity resulted in a drop in both consumer and producer surplus.
  • It is this time when consumers and producers are the ones who are being redistributed to the government.
  • Price adjustments merely rebalance the distribution of excess among consumers, producers, and the government.
  • Figure 4.7e (right)

Transfer – The Impact of Price

The price effect of the tax causes regions A and C to be moved from consumer and producer surplus to government income as a result of the tax’s influence on prices. Bringing Consumers to the Government – Area A Gasoline was initially priced at $4 per gallon for consumers. They are now spending $5 per gallon of gasoline. The $1 rise in price represents the part of the tax that consumers are responsible for paying out of pocket. Despite the fact that the tax is charged against producers, consumers are still required to shoulder a portion of the price increase.

This is due to the fact that a drop in the price to producers implies a decrease in the quantity provided, and in order to preserve equilibrium, the quantity required must reduce by an equivalent amount.

Essentially, this is a direct transfer from consumers to the government, and it has no impact on the market surplus.

Producers to Government – Area C

In the beginning, gas producers earned a $4-per-gallon income share. They are now paid $2 per gallon of gasoline. This $2 reduction represents the share of the tax that manufacturers are responsible for paying. This means that the government receives $2 million in tax income from the manufacturers for every 2 million gallons of product produced. A shift of wealth has occurred from producers to the government. According to the government’s calculations, it obtains a total of $6 million in tax money, which is collected from consumers and manufacturers.

The Implications of Quantity on Deadweight Loss Deadweight loss would not exist if we just evaluated a transfer of surplus as a possible solution.

When customers pay a higher price, they want fewer items, and when producers pay less, they supply fewer items, resulting in a decline in the amount of merchandise available for sale.

Deadweight loss in the market occurs as a result of this fall from equilibrium quantity, as there are customers and producers who are no longer able to purchase and provide the commodity.

Consumer Surplus Decrease – Area B

A significant number of customers will abandon oil in favor of other fuels as a result of the price hike. The reduction in quantity demand of 1.5 million gallons of oil results in a deadweight loss of $1 million in terms of oil. Producer Surpluses are declining – In addition, producers in Area Dwill reduce the amount of oil they supply by 1.5 million gallons per year because they would now only earn $2.00 per gallon for their output. Not by chance, the magnitude of the drop is the same on both occasions.

  1. It is important to remember that the amount requested must equal the quantity provided in order for the market to stay stable.
  2. Take note, however, that the consequence of this quantity reduction results in a greater fall in producer surplus than consumer surplus, resulting in a $2 million decline in producer surplus.
  3. Together, these reductions result in a $3 million reduction in deadweight (the difference between the market surplus before and market surplus after).
  4. It is a benefit provided by the government to organisations or people, and it is typically in the form of a cash payment or a tax deduction.
  5. In economic terms, a subsidy acts as a wedge, lowering the price consumers pay while raising the price producers get, resulting in a net loss for the government.
  6. Many regulations have been created in reaction to this, allowing low-income families to remain homeowners despite their financial circumstances.
  7. Please note that the following policy is impractical, but it provides for a straightforward understanding of the effect of subsidies.
  8. The government wants to significantly expand the number of customers who can afford to buy a home, so it offers a $300,000 subsidy to everyone who purchases a new home during the current fiscal year.
  9. Across all of the government initiatives we’ve looked at so far, we’ve tried to figure out whether the policy has had an effect on either increasing or decreasing the market surplus.

Unfortunately, as the amount of surplus overlap on our diagram rises, the situation becomes more difficult. To make the study easier to understand, the following figure divides the changes in producers, consumers, and the government into three independent plots. Figure 4.7g (High Resolution)


Producers will now get $550,000 instead of $400,000, resulting in an increase in the quantity of food delivered to 60,000 households. Areas A and B see an increase in producer surplus as a result of this.


Consumers now pay $250,000 instead of $400,000, resulting in an increase in the number of dwellings required to 60,000. This enhances consumer surplus in the areas covered by Cand D’s research.


This idea would cost the government $18 billion and require the government to pay $300,000 per property in order to subsidize the 60,000 customers who are purchasing new homes. In terms of numbers, this corresponds to a reduction in government spending in areas A, B, C, D, and E.


These are the regions where we anticipate total benefits from the policy (to producers and consumers), whereas the areas where we anticipate entire losses (the cost to the government) are areas A, B, C, D and E. To sum it all up: Specifically, the government transfers control of Areas A, B, C, and D to consumers and producers. Area E represents a deadweight loss resulting from the policy. There are two points to take note of in this particular scenario. First and foremost, the program was effective in increasing the number of residences built from 40,000 to 60,000.

It’s important to remember that if a quantity is moved from its equilibrium value, in the absence of externalities, there is a deadweight loss.


A taxation or subsidization scheme is more complex than a pricing or quantity control scheme due to the involvement of a third economic player: the government. As we have shown, who is subjected to a tax or subsidy is immaterial when analyzing how the market ultimately performs. Take note that the past three sections have given a bleak picture of the effectiveness of policy tools. This is due to the fact that our model does not yet account for the external costs that economic players impose on the macro-environment (pollution, sickness, and so on), nor does it assign any significance to equality.

For the reasons stated above, we may conclude that the legal incidence of the tax does not important; but, what does?


Economic Tax Incidence is the distribution of tax depending on who bears the burden in the new equilibrium, which is determined by the elasticity of the new equilibrium market. Legal Tax Incidence refers to the legal allocation of who is responsible for paying the tax.

Subsidy is a benefit provided by the government to organisations or people, and it is typically in the form of a monetary transfer or a decrease in taxation. It is frequently done in order to relieve some form of burden, and it is frequently deemed to be in the general public’s best interests.

Exercises 4.7

For the following THREE questions, refer to the supply and demand curves depicted in the illustration below. Take, for example, the imposition of a $20 per unit tax in this industry. 1.Can you tell me which regions reflect the loss in consumer and producer surplus as a result of this taxation? If you have any questions, please contact us at [email protected] or [phone number]. If you have any questions, please contact us at [email protected] or [phone number] or [email protected] or [email protected].

  1. If you have any questions, please contact us at [email protected] or [phone number].
  2. 3.In which areas does the deadweight loss connected with this tax manifest itself?
  3. Given the after-tax equilibrium in the sock market, which of the following claims is FALSE if the government imposes a constant per-unit tax on socks: (Assume that the demand curve for socks is downward sloping.) a) As a result of the tax, consumers are in a worse financial position.
  4. Because of the tax, producers are in a worse financial position.
  5. 5.Refer to the supply and demand diagram in the next section.
  6. If a subsidy is brought into a market, which of the following statements is TRUE?
  7. Make no assumptions about externalities.

b) The surpluses of consumers and producers fall, but the surplus of society grows.

d) The consumer surplus, the producer surplus, and the social surplus are all on the decline.

Suppose that a $6 per unit tax is imposed in this market, the price that consumers pay will be equal to , and the price that producers get net of the tax will be equal to .

This market’s new equilibrium quantity will be:a) 20 units if a $6 per unit tax is imposed on each unit sold.

c) A total of 60 units.

9) Which of the following claims regarding the deadweight loss of taxes is TRUE?

b) If there is no deadweight loss, then the income raised by the government equals exactly the amount of money lost by consumers and producers as a result of the taxation.

d) Neither a) nor b) are correct.

a) The surpluses of consumers and producers rise, while the surplus of society falls.

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b) The surpluses of consumers, producers, and society as a whole all grow in size.

11.Which of the following best illustrates the equilibrium consequences of a per unit subsidy?

Price increases for consumers, but producer prices decline and supply increases.

b) The consumer price increases, the producer price increases, and the amount of goods produced increases.

12.Refer to the supply and demand diagram in the next paragraph.

a) Five dollars; ten dollars A) $6; $11.

C) $8; $3.


What will be the equilibrium quantity if a $2 per unit subsidy is put in the market?

b) A total of 45 units.

d) A total of 55 units.

Assume that: I there are no externalities; and (ii) in the absence of government regulation, the market supply curve is the one labeled S1.14 (supply curve in the absence of government regulation).

Which section of the market will suffer the most from the imposition of a $5 per unit tax in this market? a) The letter a. b) a + b.c) a + b.d) a + d.e) a + d. d) the sum of a, b, and c.

_D =a – bP S =c + dP (1)whereD =quantity demanded,S =quantity supplied,P =price per unit anda,b,c,anddare constants. Note:In this course the constantsathroughdwill always be presented to you with values specified, e.g.a = 5.

Interpreting the equations:

By entering in the value forPin into the equations and solving forDandS, the quantities supplied and demanded may be determined when a price is specified. Take, for example, the values 12 and 1 and 0, and the values 1 and 2 such that: _D = 12 – P S =P S =P S If a price of $4 is given as an example, the values forDandScan may now be determined as follows: D = 12 – 1(4) = 8 S = 4 (3) When P = 4, it is important to note that the quantity delivered does not match the quantity required. They will only be equal when the equilibrium price is reached.

Finding the equilibrium price and quantity:

Equilibrium price is the price at which the quantity provided equals the amount requested, also known as the price at which D = S. In order to get the equilibrium price, we must first establish the demand equation equal to the supply equation as follows: The _D = S 12-P = P_ formula is used (4) We will now solve this equation forP in order to determine the equilibrium price. After deleting thePfrom the left side, the first step is to add one to each of the two sides: 12 – P =P +P = +P 12 – 0 = 2P 12 = 2P 12 = 2P 12 = 2P 12 = 2P 12 = 2P 12 = 2P It is necessary to divide each side by 2 in order to obtain the equilibrium value forP, which is the following step.

In order to calculate the equilibrium quantity, the equilibrium value forPin must be substituted into either the original supply or demand equation: D = 12 – 6 = 6 S = 6 D = 12 – 6 = 6 There are 6 units in the equilibrium quantity D = Sor6units.

The effect of a Tax

In order to evaluate the effect of a tax in this part and the effect of a subsidy in the next section, we must first study the basic supply and demand model, which includes: In the equation _D = a – bx S = c + dy_ (8), D = quantity requested, S = quantity supplied, x = amount demander pays out of pocket, y = amount provider has to finance production, and the constants a, b, and c are all constants.

  • Assume that the provider is subject to a tax levied by the government. The price that the provider would now get will not be the market price, but will be the market (equilibrium) price less the amount of the tax, of(P – T), where T is the amount of the tax owed to the government.
  • D = S 12 – P = P – 2 is the denominator.
  • It is important to note that while this is the real price paid by the buyer, the price that the supplier actually receives isP – Tor7 – 2 = 5.
  • Take note that this is one unit less than it was before to the imposition of the tax.

As a result of the tax, there has been a reduction in supply. In the event that demand remains constant, the consequence will be a higher equilibrium price and a lower equilibrium quantity as a result of this.

5. Effect of a subsidy

In order to promote demand for a certain product, suppose that the government chooses to provide subsidies to the customers of that particular product at this point in time. The price that the consumer really pays is now (P – s), where is the amount of the subsidy per unit purchased. It is reasonable to expect that the reduced price paid by the customer would result in increased demand, which will raise the equilibrium price and quantity, given that supply does not fluctuate. Example: Let’s say you have $2.

The new system is as follows: _D = 12 – (P – s) D = 12 – P + 2 S = P D = 12 – (P – s) D = 12 – P + 2 S = P D = 12 – (P – s) D = 12 – (P – s) D = 12 – (P – s) D = 12 – (P – s) D = 12 – (P (14) settingS = D: P = 12 – P + 2 2P = 14 P = 7 P = 12 – P + 2 2P = 14 P = 7 P = 7 P = 7 P = 7 is the new equilibrium price in this situation.

the value of S is 7 (16) D = Sor7 is the equilibrium quantity at this point.

The subsidy has had the effect of raising demand (shifting the demand curve to the right), which has resulted in a rise in the equilibrium price and quantity, assuming that supply has remained constant.

6. Price Dynamics: A simple example

In the vast majority of situations, suppliers are unaware of the demand curve they are confronted with. This example demonstrates how a market may reach equilibrium if providers change their prices according to a simple formula based on the amount of unsold inventory they have on hand (something they can measure). To illustrate, consider the following dynamic supply and demand model: the derivative of time is equal to the product of time and the product of the product of time and the product of the product of time and the product of time (17) P 1= 9andD represents the demand over a time period of 12 hours, whereas a = 12, b = 1, c = 0, and d = 1 represent the demand over a time period of 12 hours.

Suppliers will provide 9 units and demanders will acquire 3 units, resulting in 6 units rotting in inventory under the starting condition of P 1= 9.

P 2= P 1- 1/3(S 1- D 1) P 2= 9 – 1/3(9-3) = 9 – 6/3 = 9 -2 P 2= 7 P 2= P 1- 1/3(S 1- D 1) P 2= 9 – 1/3(9-3) = 9 – 6/3 = 9 -2 P 2= 7 However, customers will desire a lesser quantity at this price: S 2= P 2= 7 at this price.


Understanding Subsidy Benefit, Cost, and Effect on the Market

In most cases, we are all familiar with the concept of “per-unit tax,” which is a quantity of money that the government takes from either producers or consumers for each unit of commodities that is purchased and sold. The term “per-unit subsidy” refers to the amount of money that the government provides to either producers or consumers for every unit of products that is purchased and sold. From a mathematical standpoint, subsidies operate similarly to a negative tax. Whenever a subsidy is in place, the entire amount of money that is received by the producer for the sale of products is equal to the total amount of money that is paid by consumers plus the amount of the subsidy.

The following is an example of how a subsidy influences market equilibrium:

Market Equilibrium Definition and Equations

Jodi Beggs is a singer and songwriter. To begin, what exactly is market equilibrium? It is said that market equilibrium has occurred when the amount of goods provided in a market (represented by Qs in this equation) equals the quantity demanded in a market (QD in the equation). In order to find the market equilibrium produced by a subsidy on a graph, these equations must be used in conjunction with another equation or two.

Market Equilibrium With a Subsidy

Jodi Beggs is a singer and songwriter. When a subsidy is implemented, a handful of considerations must be kept in mind in order to determine market equilibrium. In the first place, the demand curve is a function of the price that a consumer pays out of pocket for an item (Pc), since the price that consumers pay out of pocket for a good impacts their consumption decisions. Second, the supply curve is a function of the price that a producer receives for a good (Pp), since the amount received by a producer impacts the incentives that the producer has to create the commodity.

More exactly, the quantity at which the corresponding price to the producer (as determined by the supply curve) equals the price that the consumer pays (as determined by the demand curve) plus the amount of the subsidy is the equilibrium quantity with the subsidy.

Consequently, we might infer that subsidies enhance the number of goods purchased and sold in a market.

Welfare Impact of a Subsidy

Jodi Beggs is a singer and songwriter. The economic impact of a subsidy should not only be considered in terms of its influence on market prices and quantities, but it should also be considered in terms of its direct impact on the welfare of consumers and producers in the market. Consider the regions labeled A-H on the figure above as a starting point. Regions A and B combined reflect consumer surplus in a free market, since they represent the additional advantages that consumers in a market obtain from an item that are in addition to and above the price that they pay for it.

The whole surplus, or the overall economic value generated by this market (also known as the social surplus) is equal to the sum of the following four factors: A, B, C, and D.

Consumer Impact of a Subsidy

Jodi Beggs is a singer and songwriter. When a subsidy is implemented, the calculations of consumer and producer surpluses get a little more difficult, but the basic rules remain the same. Consumers receive the area over and below the price that they pay (Pc) and above and below their value (which is determined by the demand curve) for all of the units that they purchase in the market. This area is represented by the letters A + B + C + F + G on the figure. As a result of the subsidies, customers are better off as a result of it.

Producer Impact of a Subsidy

Jodi Beggs is a singer and songwriter. The area between the price they get (Pp) and the price above their cost (which is determined by the supply curve) for all of the units that they sell in the market is calculated for producers in the same way as for consumers. On the figure, this area is represented by the letters B, C, D, and E. As a result of the subsidies, manufacturers are in a better financial position. In general, consumers and producers participate in the advantages of a subsidy, regardless of whether the subsidy is directed directly to producers or consumers in the first instance.

The relative elasticities of producers and consumers determine which party gains the most from a subsidy, with the more inelastic side reaping the most advantage.

Cost of a Subsidy

Jodi Beggs is a singer and songwriter. Whenever a subsidy is implemented, it is critical to evaluate not just the impact of the subsidy on consumers and producers, but also the amount of money that the subsidy will cost the government and eventually the taxpayers. As shown by this equation, if the government offers a S subsidy on each unit purchased and sold, the total cost of the subsidy is equal to S times the equilibrium amount present in the market at the time the subsidy is implemented.

Graph of Cost of a Subsidy

Jodi Beggs is a singer and songwriter. To illustrate the entire cost of the subsidy graphically, a rectangle may be drawn with a height of S and a width equal to the equilibrium quantity of goods purchased and sold while benefiting from the subsidy (see Figure 1). A rectangle of this type is seen in this picture, and it may also be represented by the letters B + C + E + F + G + H. It makes sense to conceive of money that is paid out by an organization as negative revenue since revenue reflects money that is brought into the company.

As a consequence, the “government revenue” component of the overall surplus is provided by -(B + C + E + F + G + H) where B is the number of government revenues. When all of the surplus components are added together, the overall surplus under the subsidy is equal to A + B + C + D – H.

Deadweight Loss of a Subsidy

Jodi Beggs is a singer and songwriter. It is concluded that subsidies result in economic inefficiency, also known as deadweight loss, because the overall surplus in a market under a subsidy is smaller than the total surplus in a free market. This graphic depicts the deadweight loss as area H, which is the shaded triangle to the right of the free market quantity (as shown in the diagram). When a government provides a subsidy, it promotes economic inefficiency because it costs the government more money to implement the subsidy than the subsidy generates in additional benefits for consumers and producers.

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Are Subsidies Bad for Society?

However, despite the seeming inefficiency of subsidies, it is not always the case that subsidies constitute inefficient public policy. When positive externalities are present in a market, subsidies, on the other hand, might increase rather than decrease the total surplus. Furthermore, when considering fairness or equality problems, as well as markets for needs like as food or clothes, where cost rather than product appeal is the primary constraint on desire to pay, subsidies might make sense.

eCFR : 19 CFR 351.525 – Calculation of ad valorem subsidy rate and attribution of subsidy to a product.

(a)Determination of the ad valorem subsidy rate. Ad valoremsubsidy rates are calculated by the Secretary by dividing the amount of the benefit awarded to the period under inquiry or review by the value of the product or items to which the Secretary assigns the subsidy under paragraph (b) of this section during the same period. If the product is exported, the Secretary will assess the sales value on a f.o.b. (port) basis (if the product is shipped), or on a factory basis (if the product is not exported) (if the product is sold for domestic consumption).

  1. (1)In general, the allocation of subsidies is done in this way.
  2. (2) Subsidies for export.
  3. (3)Subsidies to domestic producers.
  4. (4)Subsidies that are related to a certain market.
  5. (5)Subsidies that are related to a certain product.
  6. Any subsidies that are related to the production or sale of a certain product will be attributed only to that product, as determined by the Secretary of Agriculture.
  7. The Secretary of the Treasury will attribute a subsidy to both the input product and the downstream goods generated by a firm if the subsidy is connected to the production of an input product.
  8. (i)In a broader sense.
  9. Corporations that produce the same product as one another.

(iii)Holding companies or parent corporations Unless the firm that got a subsidy is a holding company, which includes a parent company that has its own activities, the subsidy will be attributed to the consolidated sales of the holding company and its subsidiaries by the Secretary of the Treasury.

  • (iv)Suppliers of raw materials It is possible for an input supplier and a downstream producer to be co-owners in a business, and production of the input product is primarily dedicated to production of the downstream product.
  • (v)The transfer of subsidies between firms with cross-ownership that produce a variety of diverse products.
  • (vi)The concept of cross-ownership is defined.
  • Normally, this condition will be fulfilled if there is a majority voting ownership interest between two firms, or if two (or more) corporations share shared ownership interests.
  • If a company that has received a subsidy has manufacturing facilities in two or more countries, the Secretary will assign the subsidy to items produced by the company in the nation where the government that gave the subsidy is based, in this case, the United States.
  • (c)Companies engaged in trading.

If a trading business exports subject product, the benefits from subsidies supplied to the firm that manufactures subject merchandise that is sold through the trading company will be included together, regardless of whether the trading company and producing firm are related.

Calculate your amount: COVID-19 rent and property support for businesses

  • What have been changed are as follows: COVID-19 provides assistance to enterprises with rent and property expenses. Who is eligible to apply: COVID-19 provides assistance to enterprises with rent and property expenses. Expenses that you can deduct include: COVID-19 provides assistance to enterprises with rent and property expenses. Periods during which you can apply include: COVID-19 provides assistance to enterprises with rent and property expenses. Make the following calculations to determine your amount: Support for rent and property expenses for firms under COVID-19
  • How the subsidies are calculated: COVID-19 rent and property expenditure assistance for enterprises
  • COVID-19 rent and property expense support for individuals.

The application process is as follows: COVID-19 rent and property expenditure support for enterprises Following the submission of your application: Support for rent and property expenses for firms under COVID-19 To inquire about a rent subsidy, please contact us at: Support for rent and property expenses for firms under COVID-19

On this page

  • You should use a calculator before beginning the computation.

Before you start the calculation

Before you proceed, double-check that you have the following items:

  • You have confirmed that you fulfill the qualifying requirements to file a claim. Who can apply: you and your eligible monthly income levels from the previous two years
  • Costs that are available for reimbursement, divided down per company location Expenses that you can deduct

If your company has related firms or entities, you should:

  • You and those related organizations have reached an agreement on how you would divide the maximum rent subsidy amount.

Before you calculate your claim, you should familiarize yourself with the terminology and acquire all of the relevant information.

Use the calculator

Before you submit your application for the subsidy, use this calculator to determine the amount of money you are eligible to receive. Following the completion of your calculations, you will be required to submit an online application for the subsidy through My Business Account or Represent a Client. Printing the information from the calculator will allow you to include it into your program. Notice on Privacy Practices: This calculator does not collect or save any of your personal information.

These figures are solely for the purpose of assisting you in determining the amount of rent assistance you may be able to receive.

Please be aware that this calculator does not preserve any information, therefore if you leave or refresh this page, you may be required to reenter the information.

Check to see if you have any related entities.

Summary of Step 4

  • You have stated that you do not have any linked entities that are claiming the rent subsidy during the current claim period
  • However, this is not true. Even if they do not meet the maximum eligible costs of $300,000, affiliated organizations must agree on how they will divide the maximum eligible expenses of $300,000
  • The maximum percentage of acceptable expenses that your company will be able to claim is 0 percent (you can claim up to $0.00). Other linked organizations will be allowed to claim a combined total of up to 0 percent of the total.

Revenues are down, while the subsidy rate is up. The amount of your basic rent subsidy rate is decided by the amount of income loss you have experienced. This step cannot be completed until you have selected a Claim period in Step 1.

Summary of Step 4

According to your answers to the previous questions, you are not qualified for either the THRP or the HHBRP.

  • It is 0 percent for your current period revenue reduction
  • It is 0 percent for your previous period revenue decline.

Because the greater of these revenue declines is zero percent, you are ineligible for the THRP program. at this time frame The following is how yourTHRPrate is calculated: (same as your revenue drop to a maximum of 75 percent ) (0.10 percent plus (revenue loss – 50%) multiplied by 1.60 for a maximum of 50 percent). (Revenue decreases by a factor of two up to a maximum of 37.5 percent) A maximum of 25 percent can be obtained by multiplying (5 percent plus (revenue loss — 50%) times 0.8 to get the desired result.

Because your revenue decrease is less than 10%, you do not qualified for the rent subsidy in this situation.

Your company’s physical locations The amount of rent subsidy you are entitled to get is a proportion of your qualified costs across all of your company locations.

Support for the lockdown and costs that are allowable Figure up what your lockdown support rates are and what costs are allowable. Include all of your company’s physical locations. Calculate your lockdown support rate based on your business location1.

Lockdown support rate summary

You do not meet the requirements for lockdown assistance. A place must have been closed or severely reduced in size due to a COVID-19 related public health order for at least one week in order to be considered. Because your location was closed for0days as a result of COVID-19 limitations, your lockdown support rate is 0 percent during this time. Review the information you’ve collected and print or download a spreadsheet for your records.

Claim amount calculations per location for claim period

Business location(s) Lockdown (days) Rent Property tax Property insurance Interest on commercial mortgages Rental income Qualifying expenses Lockdown support amount
Location 1
Total locations:
Calculated basicCERSamount:$0.00(based on your0%rate)

You can claim a certain amount on your application Print and save this record by clicking on the print preview button to the right. In your online CRA account, the following line amounts will be required to complete your application forof theTHRP:.

  • Line 110: The number of eligible properties is zero
  • Line 120: The total amount of eligible rent is zero
  • Line 130: The total amount of eligible property taxes is zero
  • Line 140: The total amount of eligible property insurance is zero
  • Line 150: The total amount of eligible interest on commercial mortgages is zero
  • Line 160: The total amount of qualifying rent expenses is zero. Line 200:Revenue drop for the current period:0.00 percent
  • Line 210:Revenue drop for the previous period:0.00 percent
  • Line 310:Lockdown support (subsidy top-up):$0.00
  • Line 320:Lockdown support (subsidy top-up):$0.00
  • Line 320:Lockdown support (subsidy top-up) It is necessary for you to provide the following address information in your application:

Net lease:Lines 130, 140, and 150 are only used for assets that are held by the company. In line 120, you can add any sums you paid for rental premises that were leased under a net lease.

Period: Summary ofTHRPcalculation

Affiliated entity percentage N/A
Maximum expenses that can be claimed for the base subsidy(Line 170: Lesser of line 160 or$300,000or$300,000x Affiliated entity percentage) $0.00
Subsidy rate x0.00%
Baserent subsidy(Line 300) = $0.00
Lockdown support (subsidy top-up) amount(Line 310) + $0.00
Totalrent subsidy(Line 300 + Line 310) $0.00

Before you submit your application, double-check and save your information. Information about the location For your records, you should print or download your location data. Summary of Locations Data from the THRPcalculation You should print your estimated figures so that you may include them into your rent subsidy application later. Print a preview of the document (or save to PDF) THRPstatement This website does not save any of your information. Do not leave this page without printing or saving the information you have entered.

Document navigation

To use the calculator, you must enter your qualifying revenue for the calendar months in question.

  • Consider comparing your claim period reference month income to a specific point in time before the COVID-19 pandemic
  • Consider comparing your prior claim period reference month revenue to a certain point in time before the COVID-19 pandemic
  • And utilize the lower of the two rates (deeming rule).

The Act specifies which calendar months are to be used for comparisons for each claim period, and which months are not to be used: In order to calculate your revenue reductions for the current period, preceding period, and top-up period, using your chosen baseline, you will need to know how many months you have left. More information about acceptable revenue may be found here. (This link will open in a new window)

Pre-crisis revenue and prior reference period options

As an illustration, consider the choice of revenue comparison.

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