Suggested Answers of BT2 Revision Package - ASKnLearn

Cost/benefit S 1 S 2 P 2 P 1 P 3 F HG = subsidy MPC H Figure 3: Governmentsubsidies to producersD 1 = MPB MSB Q Quantity In both cases, the under-allocation of resources would be corrected as positive externality issaid to have been ‘internalised’.The net gain to society from the subsidy or the elimination of deadweight loss is shown bythe triangle DBC in figure 2 and triangle GHF in figure 3.- Desirable as it is flexible and market based solution In the case of Singapore (National Arts Council)- Fundings to the performing arts was provided through a comprehensive grants framework. - Under the 2-­‐year Major Grant Scheme, ten of Singapore’s top performing arts companies received a total of $2.8 million in FY 2009. These were Singapore Dance Theatre, T’ang Quartet, Singapore Lyric Opera, The Finger Players, The Necessary Stage, Drama Box, TheatreWorks, The Theatre Practice, Singapore Repertory Theatre and Wild Rice. - The grants enabled these groups to o create and present quality programmes, o develop artistic practice and professional expertise in their fields o facilitate their artistic growth and resource development Anti-thesis: Govt should not subsidizeLimitations of subsidy• The valuation of the external benefit generated at the social optimal output level is inpractice a difficult task. An overestimation will lead to over consumption of the good. Anunderestimation will lead to less than social optimal consumption but at this level it is atleast more than the market equilibrium level.• High government expenditure is required to provide for the subsidy required.