Subsidies

In this post, I focus on subsidies. The author of my textbook uses the model of supply and demand to analyse the effect of a subsidy on both supply and demand. He takes the perspective of a subsidy that falls to the supplier. But not all subsidies fall to suppliers, subsidies like housing benefit or subsidy on solar panels fall to buyers. I wondered if an analysis from the perspective of the buyer would give another result, all other things equal.

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Models

I think it is important that students understand assumptions, like the ceteris paribus condition, are made when modelling. I think this is important, because to be able to assess the implications of the outcome of a model, it is important to know its assumptions. From experience, I know we, teachers, spend ample time to discuss how prices are affected when other factors of demand, like income or the price of other goods change, but do we also discuss this from the perspective of assumptions being wrong?

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