Equilibrium Graph, a Perfect Market
(Yvan). Link: bestthinking.com
In economics, a perfect market is working in equilibrium when supply equals to demand. In economic terms, demand is the willingness of consumers to purchase a product/service at a given price. Supply is the willingness of producers to produce a product or service at a given price. We wanted to use this graph to show that imposing subsidies will still be able to achieve a perfect market and to show the economic effects of a government subsidy.
How Subsidies Work
A subsidy is an assistance paid to a business or economic sector.
(Panjwani). Link: econhelp.org
The graphs above show the effect of subsidies given by the government to producers. When a subsidy is granted, the supply curve shifts to the right to supply + subsidy. This causes an increase in quantity of goods/service produced to increase. (From the example above, 460 to 540). This causes a fall in price of the good (from $260-220). This should attract more consumers to purchase the product because it is cheaper. The area highlighted in green indicates the gain to buyers and the area in red highlights the gain to sellers. This is the overall effect of government subsidies.
Therefore, renewable energy needs subsidies to lower its price to allow people to have more access to green energy.
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