Subsidy
Government payment supporting producers/consumers.
Formula
Effective Price Received by Producer = Market Price + Subsidy per Unit
Real World
The UK government subsidises renewable energy producers through the Contracts for Difference scheme, guaranteeing wind farm operators a minimum price to encourage green energy investment.
Exam Focus
Distinguish between subsidies to producers (lower costs) and consumers (higher purchasing power) — mixing these up is a common exam error.
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