Unit 2: Subsidies to increase demand for merit goods

This BBC clip outlines some of the problems with using subsidies to decrease market failure

http://news.bbc.co.uk/player/nol/newsid_7330000/newsid_7332000/7332074.stm?bw=bb&mp=rm&asb=1&news=1&bbcws=1

a) Explain how the free market for solar panels fails
b) Using a S&D diagram, explain how the use of subsidies should reduce the market failure
c) What problems are there with using subsidies to reduce market failure and how does this example illustrate some of those problems