What Is Cross Subsidy Upsc?

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What is cross subsidy in electricity India?

In accordance with the National Electricity Policy, consumers below poverty line who consume below a specified level, say 30 units per month, may receive a special support through cross subsidy. Tariffs for such designated group of consumers will be at least 50% of the average cost of supply.

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What is the result of cross-subsidization?

This results in higher fares, lower staff wages, lower frequencies and older vehicles on popular services, reduce the attractiveness of services and spreading financial risks of unprofitable services to profitable services and can result in cuts to profitable services to cover expected and unexpected losses.

What is cross-subsidization in railway?

Railways cross subsidises passenger fare making freight expensive. This increases the logistics cost of Indian products making them more expensive and thus less competitive.

What is cross-subsidization in cost accounting?

Product-cost cross-subsidization is the strategy of pricing a product above its market value to subsidize the loss of pricing a different product below its market value. For instance, if you have a sporting goods business, and you’re hoping to increase the sale of baseballs, you might price these below your own cost.

What is cross subsidy example?

Jeff, George, and Harry order meals that cost $20, $25, and $30, respectively, and are then charged $75 for the three meals on a single bill. If each one of them pays $25, Jeff is cross subsidizing Harry for $5, since Jeff is paying $25 for a meal that cost $20, while Harry is paying $25 for a meal that cost $30.

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What is cross-subsidization with an example?

us. a situation in which profits from one activity are used to pay for another activity that is losing money or making less money: He wants to end the cross-subsidization of the different products which are sold by different parts of the bank.

What are the benefits of a subsidy?

Lowering prices and controlling inflation. Preventing the long-term decline of industries. A greater supply of goods.

Why is cross subsidy bad?

But a cross subsidy cannot withstand competition. Someone else can give a better price to A. So our government protects the businesses that overcharge A from that competition. That protection ruins the underlying markets, and the next thing you know, everyone is paying more for less.

Who benefits more from subsidy?

Producer Impact of a Subsidy Therefore, producers are made better off by the subsidy. In general, consumers and producers share the benefits of a subsidy regardless of whether a subsidy is directly given to producers or consumers.

What is direct cross subsidies?

Cross-subsidies, where one group of consumers pays a higher amount so that the price paid by another group can be reduced, are common in many markets.