Question
What is the impact of a subsidy on the price of a commodity on which it is granted?
Solution
The effect of subsidy is fall in the price of a commodity. For example, Delhi Milk Scheme sells 1 litre poly bag of toned milk for र 20.00 whereas the same costs it र 21.00. The difference or loss of र 1.00 is made good by the Government by giving subsidy of Re. 1.00 per litre of toned milk. Thus the market price of a subsidised commodity is lower than its factor cost.
