This video lesson illustrates and explains the effects that a per unit subsidy will have on the market for a commodity, in this case, corn. The payment to producers from government lowers the marginal cost of production, increases supply and leads to lower prices for consumers and greater revenues for producers. However, subsidies are not always economically efficient, since as we will see, the cost to taxpayers may outweigh the benefit to producers and consumers, meaning a subsidy may result in a net loss of societal welfare.
