tax - on a per-unit basis, cost divided between consumer and producer
- subsidy - essentially a negative tax
- treated as an increased cost, this will lead to lower consumption/production
- pb = price that consumers pay
- ps = price that producers receive
- pb - ps = tax
- gov't revenue = A+B
- deadweight loss = C+D
- consumer surplus decreases by A+C
- producer surplus decreases by B+D
subsidies - moves to the other side of the graph (scandalous!) 
- ps - pb = subsidy
- note that the ps and pb have switched locations from before
- costs the gov't A+B+C+D+E+F
- consumer surplus increases by D+E
- producer surplus increases by A+B
- net deadweight welfare loss of C+F
Subject:
Subject X2:
