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Facts About Subsidy Money

Updated August 27, 2022
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Facts About Subsidy Money essay

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Subsidy is an amount of money given by the government to the producer and consumer in order to increase the production and consumption of a product. Subsidies provide to the citizens make to citizens to be more affordable to the price of the petrol which allows the price to remain fixed below free floating market rates. The effect of subsidy is to shift the supply curve vertically downwards by the amount of subsidy. Depending on the elasticity of demand, the effect is to reduce the price of the product while increasing the quantity of the product.

Figure 2 below illustrates the effect of subsidy on price and quantity. Figure 2 Figure 2 above shows how the subsidized market works. In the diagram above, the subsidy per unit is A-B which causes the price to fall from P to P1 and quantity consume by the consumer increase from Q to Q1. However, the price does not fall by the full amount of the subsidy. Although the intention of subsidy is to reduce the price to the consumer by the full amount of subsidy but the producer can gain some of the benefit in term of extra revenue where that they can keep. The gain per unit by the producer is C to P and the total gain by the producer is CAFP.

In contra, the gain per unit by the consumer is P to P1 and the total gain by the consumer is PFBP1. However, the total subsidy that provide by the government is shown by CABP1. However, if the global oil prices increase, countries such as Malaysia which are heavily subsidize oil prices may suffer as the cost of subsidies will start consuming even larger amount of their budgets. Similarly, the demand of the petrol in our country will remain or even increase as the lack of change of fuel costs fail to provide any incentives for citizens to reduce their consumption. According to the article given, Malaysian government will not give subsidies of petrol to RON97 which is left to float according to the world price. Actually, before the election is carry out in our country, all of the petro are following the float market system.

Based on our former prime minister, Datuk Seri Najib Razak, the float market system will benefit the socioeconomic systems as the government would be able to save and allocate the funds in order to develop our country in many other sectors. The float market system also will benefit the public following predictions that the world crude oil would be experience a downwards trend. Figure 3 below will give a clear picture about the historical weekly petrol price based on the implementations of the managed float system. Figure 3 We also had collected some of the data about the changes in the petrol price of RON 95, RON 97 and also diesel when this petrol follows the float market system based on former government and also the data of RON 95 and diesel when the Malaysia’s government willing to subsidies it.

Facts About Subsidy Money essay

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