Subsidy and market failure

Money grant given to producers by the government to lower costs of production and encourage an increase in output

Lowers cost of production, lowers price and increases quantity, solves under consumption/production, achieves allocative efficiency and welfare gain

Lowers cost of production, lowers price and increases quantity, solves under consumption/production, achieves allocative efficiency and welfare gain

Cost, setting subsidy at right level, will firms use subsidy as they should, price inelastic demand

People with cars may not want to use public transport due to inflexibility of timetables and quality etc