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we know that taxes generally create whats known as deadweight loss or loss of economic efficiency when theyre placed on otherwise well-functioning markets so its tempting to think because the subsidy has the opposite market impact of a tax that maybe a subsidy is this magical creature that actually creates value rather than destroys value so its worth going through this exercise and understanding how a subsidy affects the amount of value that is created by a market and to do that we can think in terms of our typical welfare table and we could look at what consumer surplus producer surplus government revenue and total surplus look like both in the free market and under the subsidy so we can analyze the changes in the value created the result to do this Ive drawn our market diagram and I put a subsidy in place I labeled the original free market price and quantity and also the prices to the producer and to the consumer and the equilibrium quantity once the subsidy is put in place I
