Nice graphic--How things have changed from 2000 to 2010...Quite Amazing!

2000 Vs. 2010: How the world has changed (HT: FLAD on Facebook)

If world leaders (Iran, Bolivia, Venezuela, Cuba, (US?)) would read the chapter in a basic economics textbook on subsidies, they could avoid social unrest and alot of grief.

Bolivian president cancels gasoline price increase

""The government announced Sunday that it was raising gasoline prices by 73 percent, to 92 cents a liter ($3.48 a gallon) for regular gasoline, up from 50 cents ($1.89)....Bolivian President Evo Morales on Friday abruptly canceled a decree that sharply raised fuel prices, reacting to widespread protests and the threat of more to come in the biggest setback of his five years in office... 

Public subsidies are payments by the government to producers and/or consumers of a good or service. The justification for subsidies is the current production of the good/service is less than the socially optimal level of production and/or the current market price is too high. A subsidy to the producer decreases the cost of producing and incentivizes the producer to increase the supply of a good/serviced at a given price (Supply curve shifts RIGHT) which decreases the market price and increases the quantity supplied at that lower price. A subsidy to the consumer decreases the price of a good/service and incentivizes the consumer to increase the demand for a good/service at a given price (Demand curve shifts RIGHT) which Increases the market price (but is off-set with the subsidy) and increases the quantity demanded. This article suggests the subsidy is bestowed on the supply/supplier side, so I will show graphically the effect of the subsidy on supply of gasoline in Bolivia. are payments by the government to producers and/or consumers of a good or service. The justification for subsidies is the current production of the good/service is less than the socially optimal level of production and/or the current market price is too high. A subsidy to the producer decreases the cost of producing and incentivizes the producer to increase the supply of a good/serviced at a given price (Supply curve shifts RIGHT) which decreases the market price and increases the quantity supplied at that lower price. A subsidy to the consumer decreases the price of a good/service and incentivizes the consumer to increase the demand for a good/service at a given price (Demand curve shifts RIGHT) which Increases the market price (but is off-set with the subsidy) and increases the quantity demanded. This article suggests the subsidy is bestowed on the supply/supplier side, so I will show graphically the effect of the subsidy on supply of gasoline in Bolivia.

The first graph shows the apparent market equilibrium price of $3.48 WITHOUT the subsidy, as indicated in the paragraph above. This is shown as Point "A" where Supply* intersects with Demand*. At Point "A" quantity supplied EQUALS quantity demanded.



NOTE: On horizontal axis units are in tens and hundreds. They could be thousands or millions. For simplicity I will just use tens and hundreds

 When the subsidy is granted to the producer the cost of producing decreases. Focus on Supply* curve.  Supply* reflects the quantity supplied (horizontal axis) at every price (vertical axis). With the subsidy, to produce 100 gallons of gasoline it now costs something less than the $3.48 market price, represented by Point "B" in this graph:

What is true at Point "B" is also going to be true ALL ALONG Supply* curve. This is reflected in the following series of graphs:

Points "A", "B", "C", "D", "E" represent different price and quantity supplied combinations that now lie parallel and to the RIGHT of Supply*. If we connect these points and clear the above graphs of all the notations, we will see that we have a new market supply curve, Supply 1:

Notice that ONLY one of these new points on Supply 1, "D", intersects with Demand*.  We have a new market equilibrium price of $1.89 and market quantity 125. Nothing in the market caused Demand to change (shift) ONLY the quantity demanded.  Demanders responded to this increase in Supply, driven by a decrease in the cost of producting, by INCREASING their quantity demanded, moving down and to the right on Demand*, just what the Law of Demand states!
To see this more clearly, assume the market did not recognize what happened and the price stayed "sticky" at $3.48.  In the graph below, we can see at $3.48 the Quantity Demanded is 100 BUT because of the subsidy the Quantity Supplied at $3.48 is 150, shown at Point "F". Quantity Supplied is GREATER than Quantity Demaned! The only why to clear the markets is for the producers and suppliers to move ALONG their respective curves until the reach a new equilibrium at Point "D" where quantity supplied equals quantity demanded at a price of $1.89.

Remember, the price is lower and the market quantity is higher due to the subsidy.  If the subsidy was removed then, absent some other factor affecting cost of producing, Supply 1 would snap back to Supply* and the market price would return to  $3.48.  This is what prompted the Bolivian government to revoke the planned removal of the subsidy.

This is just another reminder of why it is important to study economics and how economic policies can affect politics and society.  As I often say in class, show me a place that has social unrest and I will find you a very basic underlying economic reason for it.

My wish for the New Year....YES, it is related to economics...Don't judge me...

Food for thought as we pass into the New Year...

""On Jan. 1, 2011, the oldest Baby Boomers will turn 65. Every day for the next 19 years, about 10,000 more will cross that threshold. By 2030, when all Baby Boomers will have turned 65, fully 18% of the nation's population will be at least that age, according to Pew Research Center population projections. Today, just 13% of Americans are ages 65 and older.""Pew Research Center

New Year, same problem with long-run Social Security and Medicare sustainability...Is THIS the year these programs will be addressed with the seriousness they merit? That is my wish for the New Year---or to lose 25 pounds, whichever comes first.  They both face insurmoutable odds... :)

If you shovel snow from a public parking space, can you "save" that space for yourself? Show your work for full credit...

Interesting how circumstances can change the way people think about public property.  Just because someone shoveled a space they feel entitled to it.  Perhaps these residents are using this passage from John Locke "Two Treatises on Government" to justify their attempt at co-opting of public property:

""The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature hath placed it in, it hath by this labour something annexed to it, that excludes the common right of other men: for this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common for others.""

However, I don't believe Locke would not approve of using his words in this case with land legally appropriated for use "in the common"--it is no longer "in the state of nature"--or is it? If government fails in its duty to preserve the property in common (not plowing the road for the safety/convenience of its citizens),should/could it not be considered plunged back into the state of nature?  It would be an interesting episode of COPS to see a resident use Locke to justify  his place-holding of a public parking spot...I am guessing that would end with a tasing.

Wind energy is for the birds! Actually it is AGAINST the birds! I thought Wind Energy was clean...Sounds kinda nasty to me...

Wind energy is already expensive to produce (per kilowatt hour, minus the subsidies it recieves) and if well-intentioned interest groups have any input, it will get more expensive. The problem: Birds are victims of the spinning blades and the American Bird Conservatory would like to require additional environmental impact studies and additional regulations imposed to be more "bird-friendly". 

From American Bird Conservatory:

""Wind power has the ability to be a green, bird-friendly form of power generation, but can also adversely affect birds. Birds can die in collisions with the turbine blades (up to 14 birds per megawatt per year in the U.S., with a median rate of around 2.2 birds/MW/Yr according to industry estimates), towers, power lines, or related structures, and can also be impacted through habitat destruction from the siting of turbines, power lines, and access roads. Some birds, such as sage-grouse are particularly sensitive to the presence of turbines, and can be scared away from their breeding grounds several miles away from a wind farm.

Potentially all night-migrating songbirds are at risk of colliding with wind turbines, as are raptors and waterbirds when wind farms are sited in areas they frequent, particularly wildlife refuges. Greater Sage-Grouse are particularly sensitive to the presence of wind turbines near their breeding grounds.


American Bird Conservancy supports alternative energy sources, including wind power, but emphasizes that prior to the approval and implementation of new wind energy projects, potential risks to birds should be evaluated through site analyses, including assessments of bird abundance, timing, and magnitude of migration, and habitat use patterns.


Wind energy project location, design, operation, and lighting should be carefully evaluated to prevent bird mortality, as well as adverse impacts caused by habitat fragmentation, disturbance, and site avoidance. Wind power projects should be sited on areas with poor habitat where possible, such as heavily disturbed lands, (e.g. intensive agriculture). Excellent guidelines to prevent adverse impacts of wind power generation on birds are already in existence, but these need to be turned into mandatory regulations. Read ABC’s complete position statement on wind.

Cost of production is a determinant of Supply. When additional costs are incurred complying with regulations, ceterus paribus , then supply decreases (shifts left). Moving up to the left along our demand curve, from Point "A" to Point "B", we reach a new higher market price ("P1) and a lower market quantity ("75"). (HT: Environmental Economics)

Good ol' Days--Part 3---Shipping costs in 1960 relative to today...I was born too early!! The good ol' days are today...

Professor Mark Perry at Carpe Diem has done a series of "then and now" price comparisons using a terrific online resource from Radio Shack. They have put the ENTIRE contents of decades worth of their catalogs online. It is really fun to look at the catalog from my (or your) birth year. The pictures are fun to look at and for those of you who are really into the technical aspects of consumer electronics will be AMAZED at the detail they go into with each good. Don't see that anymore....

Dr Perry has focused on final goods, but I was curious about the transportation costs of getting a good delivered to you.  Below you will find the table from the 1960 catalog (my birth year).  If I wanted to buy something that weighed 11 pounds (easy to do the math) and have it shipped to me it would have cost $6.30 in 1960 (1st pound $.70 and each additional pound $.56).  I also used "Zone 5" estimating that the package would travel 1000 miles to get to me.  Using an inflation calculator, that would be $46.57 in TODAY's dollars! WOW!

Radio Shack Catalog--1960

From the US Postal Service website, I found the following:

Just guessing, but an 11 pound item would probably fit in either of the boxes on the right.  These are retail prices, so a large company like radio shack probably gets a significant price break on it shipping costs from the USPS.  Shipping costs are 3 to 4 (maybe 5) times cheaper today than in 1960.

Not only have the goods we buy today gone down in price but the transportation costs to get them to us have decreased significantly as well.  In the age of a global supply chain, it seems you could not have one without the other...

Who is more selfish---Senior Citizens who won't take reduced benefits to help young people financially, or young people who won't pay more taxes to help old people financially? Good luck with that question...

My students over the last few years have heard something very similar in my lectures, but I have always prefaced it by suggesting this is not something you can say out loud (outside of an academic setting) because these two programs (Social Security and Medicare) are so sacred and personal.  Up to this point, politically, they are off-limits to any significant change.  However, they are the "elephants in the room" that are moving from the recliner to the couch and will soon need a sectional sofa to fit its ever expanding self... 

WSJ: Notable and Quotable-
Robert Samualson

""There has been much brave talk recently, from Republicans and Democrats alike, about reducing budget deficits and controlling government spending. The trouble is that hardly anyone admits that accomplishing these goals must include making significant cuts in Social Security and Medicare benefits for baby boomers. . . .Doing so, it's argued, would be "unfair" to people who had planned retirements based on existing programs. Well, yes, it would be unfair. . . But not making cuts would also be unfair to younger generations and the nation's future. . . . The old deserve dignity, but the young deserve hope. The passive acceptance of the status quo is the path of least resistance—and a formula for national decline.""

What do you think of the following two premises and questions? Are there any alternatives? If so, Washington needs to hear them.... :)

(1) Ask any grand-parent if they would do anything for their grand-children they would say yes...Then why can't we cut Social Security and Medicare benefits to that group of people?

(2)  Ask any Grand-child if they would do anything for their grand-parents they would say yes...Then why can't we raise the Social Security and Medicare taxes on that group of  people.

What South Korean students are doing on Christmas Break vs. What American students are doing....

"What did you learn over Christmas Break?"

South Korean student answer: "How to dominate the world!"

South Korean elementary and middle school students rub their bodies with the snow during a winter military camp for kids at the Cheongryong Self-denial Training Camp on Daebu Island in Ansan. Some 50 students took part in the three-day camp as a way to mentally and physically strengthen themselves. Baltimore Sun.

American student answer: "Break was too short! It is not fair!"


American students practicing for a "really cool" Flash Mob to be performed at the mall,
or
re-enacting the last episode of "Glee"
or
Some-Such...



Does DisneyWorld fascinate you? Nice NYTIMES article on how they monitor lines and wait times...It is scary how efficient they are without you knowing it!

I am a recent convert to the greatness of DisneyWorld...As an Economics teacher, what particularly interests me is the "magic" and how it is created and maintained.  Whenever I go there, I "look at the trees instead of forest" and try to pinpoint all the nuances of how Disney Inc. tries to manipulate us into having the experience they want us to have.  Some would say that takes the fun out of it...Hey, I say it puts the fun INTO it!! 

If you are interested in the behind the scene machinations of how they monitor lines and get people moving without their explicit knowledge, then  it will be worth your time to read the whole article. The study of lines, or "queues", are the subject of much social science research. Businesses are always looking for ways to shorten customers wait times, make that time less of a burden on customers, and/or try to wring out additional sales and profit from that wait time....Good stuff!

NYTIMES: Disney Tackles Major Theme Park Problem: Lines

""Deep in the bowels of Walt Disney World, inside an underground bunker called the Disney Operational Command Center, technicians know that you are standing in line and that you are most likely annoyed about it. Their clandestine mission: to get you to the fun faster....And so it has spent the last year outfitting an underground, nerve center to address that most low-tech of problems, the wait. Located under Cinderella Castle, the new center uses video cameras, computer programs, digital park maps and other whiz-bang tools to spot gridlock before it forms and deploy countermeasures in real time. ""

Do you want your life to be happier? You can! All you have to do is turn 50. Here is a graph to prove it...

Well, as you can see, turning 26 will do it too, but then is goes back downhill...Although I am only 8 months into my 50th year, I find some validity in the graph below.  Acceptance of things I cannot change has gone a long way in giving me piece of mind...No mid-life crisis for me, unless you consider recently I have not worn my seatbelt when I am in my car alone and take the short trip to the grocery store...Ahhh, the freedom!! I think I am going to be good from now on... :)

""When people start out on adult life, they are, on average, pretty cheerful. Things go downhill from youth to middle age until they reach a nadir commonly known as the mid-life crisis. So far, so familiar. The surprising part happens after that. Although as people move towards old age they lose things they treasure—vitality, mental sharpness and looks—they also gain what people spend their lives pursuing: happiness. This curious finding has emerged from a new branch of economics that seeks a more satisfactory measure than money of human well-being. Conventional economics uses money as a proxy for utility—the dismal way in which the discipline talks about happiness. But some economists, unconvinced that there is a direct relationship between money and well-being, have decided to go to the nub of the matter and measure happiness itself...Read Full Artice HERE

The Economist

""The Good ol' Days""-- Part 2...

(See Part 1 HERE)...Mark Perry at Carpe Diem gives further evidence that the "good ol' days" are TODAY, and as someone born in 1960 I tend to agree.  What gives money its value to the great un-washed is what we can exchange it for in the quantity and quality of goods/services.  You can extend this analysis to consumer goods across the board IF those goods are (1) bought in competitive markets domestically that are subjected to limited government interference through significant market distorting subsidies (private and public goods, i.e. education, medical care) and (2) subjected to international trade and competition.  Please visit this ENTRY many active links in this blog entry I did not include...

""Here's another comparison of consumer purchasing power in the 1960s versus today, based on the time cost of common household appliances like a kitchen oven. The Sears Kenmore oven pictured below retailed for $330 in 1966, which would represent 121.3 hours of work (about three weeks) at the average hourly wage in that year (ignoring taxes).

At the current average hourly wage of $19.10, today's average consumer would earn a little more than $2,300 working 121.3 hours, and would be able to furnish their entire kitchen with the new appliances pictured below (click to enlarge) from Best Buy including a high-efficiency front-loading washing machine, super capacity gas dryer, 30-inch gas stove, 8.8 cubic feet chest freezer, 16.5 cubic foot refrigerator, dishwasher, mid-size microwave and blender:

Measured by what is ultimately most important, the value of our time, household appliances keep getting cheaper and cheaper, thanks to innovation, technology improvements, supply chain efficiencies, increases in productivity and other market-driven efficiencies that drive prices lower and lower year by year. As much as we hear about declines in median income, economic stagnation, the disappearance of the middle class, falling real wages, increasing income inequality, the data tell a much different story: The rich are getting richer and the poor are getting richer.''

Which Christmas would you prefer? The one from the good ol' days of 1964 or the Malthusian days of 2010?..The choice is easy for me.

Ahhh...the good ol' days of the 1960's!! Ummm, not so much.  I think we suffer from a collective case of "good old day" syndrome.  You tell me, would you rather have the Christmas of 1964 or 2010? (HT: Carpe Diem)



Carpe Diem

 I remember my "rich" friends getting a T.V. like either one of these! The small white boxes on the picture show the equivalent of $749 and $799 in 1964 to today's dollars--$$5,300 and $5,650, respectively.  In other words, factoring in inflation, the purchasing power of $749 in 1964 is equivalent to the purchasing power of $5,300 today. Another way of looking at it, is that 1964 TV would cost you $5,300! Yikes! The true test of the value of money is what it can buy. Below are some examples of bundles of goods you could buy today with the equivalent of 1964 dollars.  I can buy ALL these today AND a better TV to boot,  than I could in 1964!:

Carpe Diem

AND



Carpe Diem





The ONLY reason I would choose 1964 is because I would only be 4 years old...Other than that, well...Perhaps THESE are the good ol' days!

Source CARPE DIEM:

""Bottom Line: For a consumer or household spending $750 in 1964, all they would have been able to afford was a console color TV from the Sears Christmas catalog. A consumer or household spending that same amount of inflation-adjusted dollars today ($5,300) would be able buy able to furnish their entire kitchen with 8 brand-new appliances (refrigerator, freezer, dishwasher, range, washer, dryer, microwave and blender) and buy 9 state-of-the-art electronic items (laptop, GPS, camera, home theater, plasma HDTV, iPod Touch, Blu-ray player, 300-CD changer and a Tivo recorder). And of course, even a billionaire in 1964 wouldn't have been able to purchase many of the items that even a teenager can afford today, e.g. laptop, GPS, digital camera.

As much as we might complain about high unemployment, high taxes, a huge deficit, we have a lot to be thankful for, and we've made a lot of economic progress since the 1960s as the example above illustrates, thanks to the "magic of the marketplace."""

How much is the Federal and State tax on a gallon of gas? Oh, you did not know taxes were already included...Find out how much you pay relative to other states...

Gasoline prices are inching up lately due to the increase in the price of crude oil. The media often reports regional differences in gas prices, but seldom goes deeper in examining why.  One reason is differences in State gas taxes assessed per gallon of gas.  Embedded in the price of a gallon of gas at the pump is a Federal gas tax of $.18 ("18 cents") plus the State tax. This link Gasoline prices and taxes by state will take you to an interactive graph showing each States retail price of gas AND the State tax per gallon (you have to subtract 18.4 cents from the total to get the state tax).  Texas and Californial have a pretty large difference in retail price--$2.85 vs $3.28 respectively.  The State gas tax in Texas is $.20  and the State tax in California is $.461, a difference of $.261.  If we factor out the difference in State taxes, we find the "real" price of gas in California is $3.02 ($3.28 minus $.261) compared to $2.85 in Texas. Still higher, but not as dramatic.  What else could account for the relative difference in prices? 

Now, this does not make motorists in California feel any better but it does make the gas price comparison a little more honest.


Upon 30 seconds of reflection, I find at least one hole in my analysis (a pretty big one)....Look at the graph and see if you can find out what I missed...EXTRA CREDIT on the final is at stake!!!

Private Property Rights---BORING!! Well, not so much for people without them...They would like just a little of what rights you enjoy today...

In the span of two days the articles linked below have shone a light on how the lack of enforceable private property rights in developing countries have harmed large groups of people.  This is a widespread problem in Africa and other developing countries and it is commonly cited as a (the?) major, over-arching reason why it makes it so difficult for these countries to experience significant economic progress for the masses.

WSJ: Tullow Oil's Ambitions in Uganda Entangle Company in Land Dispute
NY TIMES: African Farmers Displaced as Investors Move In

Here are a few excerpts that illustrate the issue/problem. Notice the commonalities:

""The half-dozen strangers who descended on this remote West African village brought its hand-to-mouth farmers alarming news: their humble fields, tilled from one generation to the next, were now controlled by Libya’s leader, Col. Muammar el-Qaddafi, and the farmers would all have to leave."" WSJ 

""Sekou Traoré, 69, a village elder, was dumbfounded when government officials said last year that Libya now controlled his land and began measuring the fields. He had always considered it his own, passed down from grandfather to father to son.""WSJ

""A battle is brewing over oil-rich land licensed by Uganda's government to Tullow Oil PLC, entangling the U.K. company in a conflict between nomadic livestock herders and indigenous communities.  In recent days, Uganda's army had begun enforcing an order from President Yoweri Museveni to remove the herders. They were forced off the land with about 10,000 head of cattle and not provided with an alternative place to settle, according to security officers in the Bulisa and Hoima districts. "" NYTIMES

""The legal spat echoes similar conflicts over land and resources in other developing countries, from Africa to Asia. Governments sometimes sell land to companies where local farmers have lived for generations, with or without any record of property ownership."" NYTIMES

""Like many other indigenous people in the area, Mr. Alisemera said he inherited his land from his ancestors. Yet with the discovery of oil and an influx of cattle herders, his hold on the land is threatened. Many herders have acquired title deeds in an effort to bolster bids for compensation if they are asked to leave."NYTIMES

From our Euro-centric point of view, it seems like a relatively simple thing to do.  Advanced economy's of the developed world have mastered the art of establishing and maintaining private property rights to the extent that we hardly give it second thought and it is woven into the fabric of our economic DNA. How come we can do it, but much of the rest of the world can't or won't?  Ownership rights give one a sense of security and it allows you to benefit (ok, profit) from that ownership.  Ownership rights privide the incentive to maintain and improve the asset for (1) your own private benefit, which in turn improves the community you live in and (2) makes it more attractive to someone else who may want to acquire ownership in your asset at a fair market price.  Without property rights that are enforced by the rule of law, then the incentive to do these two things, in large part, disappears.

Hernado de Soto, in his great book "The Mystery of Capital--Why Capitalism Triumphs in the West and Fails Everywhere Else"", gives as keen an insight on this issue and is considered an authority on the subject.  He sees private property as a generator of physical and financial capital that one can parlay into more physical and financial captial.

""...But they hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. Because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment....""

""The poor inhabitants of these nations —the overwhelming majority— do have things, but they lack the process to represent their property and create capital. They have houses but not titles; crops but not deeds; businesses but not statutes of incorporation. It is the unavailability of these essential representations that explains why people who have adapted every other Western invention, from the paper clip to the nuclear reactor, have not been able to produce sufficient capital to make their domestic capitalism work.""

In the US and other developed countries this confiscating of property with no due process rarely happens.  While not perfect, we do have the institutions (the legal system) to help us fend off land grabs, from the government or other elites, that are so common in developing countries.  Until private property reforms are made and enforced by an independent legal system, places and incidents like the ones described above will have very limited progress. 


So, if you own a house, car, business, or other physical/financial asset and you don't fear someone can arbitrarily take it away from you, then you should thank the private property rights our major institutions (executive, legislative, judicial) still protect...many in the world envy you right now...

Want to create a revolution in Iran? It is not very romantic, but taking away subsidies might do it...

LA TIMES: Prices in Iran rise after lifting of subsidies

""The Iranian government's removal of decades-old subsidies for food and energy in an attempt to boost its troubled economy has spurred price increases on everything from fruit and vegetables to gasoline, generated work stoppages and emboldened the political opposition....""

A government can choose to subsidize the production (supply) or consumption (demand) of a good and/or service. From the tone of the article I am going to assume the Iranian government provides the subsidy to the producers/suppliers of goods and/or services. A subsidy is a cash transfer (or tax credit) intended to reduce the cost of producing a good/service for the producer with the goal of reducing the price to the consumer.  To see how this occurs, let's look at it graphically. 

The first graph shows the pre-subsidy market equilibrium for __??___(insert any of the goods/services mentioned in the article).
 

If the government offers the subsidy to the producer this, in effect, decreases their cost of producing. Relative to ANY point on supply curve "S w/o subsidy" the cost of producing  is going to be "P w/o subsidy PLUS the Subsidy".  See graph below.

If we connect our new points, we find our market supply curve has shifted to the RIGHT. Shown below as "S w/Subsidy". At any price the quantity supplied is going to be GREATER than it was relative to "S w/o Subsidy".

Only ONE of these points on "S w/Subsidy" intersects with the existing demand curve (D*)--Point "B". If we connect and re-label our equilibrium points, we see we have a market equilibrium price of "P1 W/Subsidy" and market quantity "Q1".  Illustrated below:

Now, at Point "B" we have  market quantity "Q1".  This implies Quantity Demanded = Quantity Supplied. True enough. But to see the effect of the subsidy, look at what previously suppliers would have had to receive to supply "Q1".  If we take the subsidy away, we see producers would have required "P2" for that quantity supplied. See Point "C" on the graph below:

The subsidy reduced the market price to consumers to "P1 w/subsidy".  When the government rescinded the subsidies, "S w/Subsidy" snapped back to "S w/o Subsidy" very quickly. We returned to the original price and market quantity.

I hope this helps in understanding the current social unrest in Iran. It is important because with all the other problems people have had lately with the ruling regime there, this could be a tipping point for many who were not interested in participating in the protests earlier in the year.  As I am fond of saying, look at the root cause of most wars, revolutions, or other manifestations of social unrest, there is usually an everyday economic problem associated with it...