What is a subsidy?

• A. A subsidy is a tax incentive only.
• B. A subsidy is a government benefit given to an individual, business, or institution; it can be direct (cash) or indirect (tax breaks).
• C. A subsidy is a fee charged for services.
• D. A subsidy is a loan that must be repaid with interest.

Answer: (B)

Subsidies are government support that lowers the cost of producing or consuming a good or service for individuals, businesses, or institutions. They can come as direct cash payments or as indirect benefits like tax breaks or credits that reduce the amount owed. This means subsidies change the price signal in the market and can encourage more of the subsidized activity. They’re not simply taxes, fees, or loans; a subsidy is a form of government benefit. For example, cash payments to farmers or tax credits for renewable energy equipment are subsidies.