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I have a great confusion about the fundamental of subsidy . Why government give subsidy when it can also discount the price but it doesn't do so ?

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  • $\begingroup$ How does the government "discount the price", in particular when if it is not the seller? $\endgroup$ – Henry Dec 9 '16 at 9:08
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Supposing by "discount the price" you mean set a maximum allowed price that is lower than the current price. At the current price supply is equal to demand, when the price drops, there will be less supply and more demand. Then there is more demand than supply and the government doesn't want this because some people don't get what they want. Subsidies solve this problem because the price will drop because a part of the profit isn't paid for by the consumer but by the government. Then supply and demand are equal and the price is lower.

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