Discuss Whether Governments Should Subsidise Food Prices (18)

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Discuss whether governments should subsidise food prices (18) A subsidy is a payment from government to a producer in order to encourage production and consumption to help t correct market failure. These are most commonly used in a free market due to increased chance of market failure. This is the type of market that the UK operates with making subsidies a vital tool for the government in controlling the British economy. With an ever rising population the need and want for more food in Britain is rising but producers don’t have the resources or capacity to match the demand. But by introducing subsidies you allow the producer to either increase the amount of resources they have available or gives them to opportunity to increase their capacity and subsequently rising output. This will benefit both parties as the producers will feel higher profit and the consumers will feel a rise in supply and a fall in prices as the savings from the subsidy can be passed on to the consumers. This will lower living costs and therefore lead to an overall better standard of living for Britain. As the subsidy reaches the producer it allows them to increase supply causing the shift to the right from S (pre subsidy) to S1 (post subsidy). This means as shift in the equilibrium point to a point that is further along the quantity axis and lower on the price axis meaning that the overall quantity of sales has risen but the price per good has fell. Also by introducing food subsidies it will cause a variety of positive externalities. These include a more productive work force as more workers will be a healthy diet allowing them to work harder and for longer without becoming tired and fatigued. This will also help to lower NHS costs as with a reduction in food prices some people will now be able to afford better quality foods and move away from high fat foods such as ready-made meals.

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