Analyse the impacts on the market if a subsidy was granted to cotton producers, and the discuss the consequences for stakeholders

Define the terms in the question: Subsidy, and then explain that it would be a positive externality of production.Draw and illustrate a positive externality of production, ensure to label everything and not mix anything up.Explain that the subsidy would decrease the price consumers pay for cotton, and would increase the price producers get for cotton, as they receive the price consumers pay and the government subsidy per unit. Therefore, the quantity produced and consumed also increases .Explain that consumers are better off as they receive a higher quantity of cotton at a lower price. Explain that producers are better off as they make larger revenues due to selling a larger quantity of cotton and receive a higher price. Explain that the government's payment of this subsidy is a burden on its budget, and that taxes may have to be raised to fund this subsidy, and that the money could potentially be better utilized elsewhere. More workers are hired to produce the extra output. Society as a whole is worse off because there is an overallocation of resources resulting in welfare loss. Foreign producers will be worse off as it is effectively a form of trade protection.