. Please list and discuss three. Earlier, we discussed the idea of the government creating a system where gasoline is purchased on the supply curve for $4 per gallon, and sold to us on the demand curve for $2 per gallon. Please list and discuss three reasons why this idea may be a BAD IDEA. reasons why this idea may be a BAD IDEA.

Answer is explained in the explanation section below.

Explanation:

Solution:

This question discusses about the concept of subsidy. Let's first get to know what is subsidy.

Well, subsidy is a financial relief that usually governments give to their people and industries to grow the economy of the country and to give relief to the common people of the country. For example, if a country is importing gas on the rates of $4 per gallon, then as a subsidy it will provide the gas to industries and people to $2 per gallon. It seems as a good idea but it has serious repercussions as well. It may be terrible idea as well, let's see how.

1. Higher amounts of taxes:

The amount that common people and industries get as a subsidy is basically driven out from the people in the form of taxes. Governments raise funds for the subsidy from the tax collection of the country. So, if the subsidies are given then, there is a high probability that, government will impose higher taxes on the people of the country.

2. Misuse:

Obviously, if government gives subsidies then opportunists and people who hoard goods will misuse and buy huge amounts in less prices and sell it in the original prices. It can disturb the demand and supply curve and hence raise the inflation in turn.

3. Supply deficiency:

With subsidies on goods comes deficiency of supplies as well. Due to less prices of a particular good in the market, demand can go huge. Consequently, it can create supply deficiency and will eventually contribute in removing of the subsidies.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

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