You are considering becoming involved in the sustainable energy industry by open

Question

You are considering becoming involved in the sustainable energy industry by opening a business that installs solar panels. In your area, this industry can be characterized as a competitive market. The industry also receives government subsidies. Through your study of economics, you recognize that the subsidies, or price supports, push the price for a good or service above would prevail without the controls. You have heard that some solar panel installers complain they cannot earn a profit even with the subsidies. Why might this be? Will higher support prices help solar panel installers in the long run?

Explanation / Answer

Market for solar panels being competitive doesn't have any markup above cost . This is because prevailing competition in solar panels doesn't allow producers to charge higher prices. If any producer tries to cut price a little there will be a price war among the producers and finally competitive price will prevail.

No, it won't help in long run because as subsidy is provided more producers will enter the market thus increasing supply lowering the price charged further. Lower prices means lower profits.

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