Hello there! This is really several questions in one, but if you want the short of it, the TLDR version is the title:

    If increased consumer income causes a shift in demand, then how much of a subsidy is captured by higher prices?

    – – –

    And then here are some extra questions I have…

    I gather the answer will depend on a lot of other details, like subsidy design, good/service being subsidized, etc.

    For example, clothing items are more standardized, more easily replicable, and more substitutable, while suppliers of clothing have greater ability to quickly change production capacity and/or match increased demand by increasing supply, and there are many competing suppliers in a market that is not very difficult for newbies to enter.

    But, on the other side of the spectrum, there are monopolies (patented meds) and monopoly-ish goods (real estate). These tend to be more heterogenous, less substitutable, have slower/longer supply times, and there are less suppliers (sometimes even literally one supplier) competing in a market that is very difficult for newbies to enter.

    (1) Are these the kinds of details one would begin to parse in order to study the effects of subsidies?

    (2) Is there a general approach for the broad categories of details which are usually relevant to "subsidy analysis"?

    (3) Is there a more specific name for the field I'm describing? That way I can know what to search for when doing further research. We have the idea of tax "incidence", and the idea of value "capture"; but is there an equivalent term for the study of subsidy "incidence" and/or subsidy "capture"? If we have "tax incidence", surely we have "tax-break incidence", too, right? 😛

    Thank you very much for your time. 🙂

    If increased consumer income causes a shift in demand, then how much of a subsidy is captured by higher prices?
    byu/j-a-carroll inAskEconomics



    Posted by j-a-carroll

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