Introduction:

A subsidy is a benefit given to an individual, business, or institution, usually by the government. It can be direct (such as cash payments) or indirect (such as tax breaks). The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy.

Types of Subsidies:

A subsidy typically supports particular sectors of a nation’s economy. It can assist struggling industries by lowering the burdens placed on them or encourage new developments by providing financial support for the endeavors. Often, these areas are not being effectively supported through the actions of the general economy or maybe undercut by activities in rival economies.

Direct vs Indirect subsidies:

Direct subsidies are those that involve an actual payment of funds toward a particular individual, group, or industry. Indirect subsidies are those that do not hold a predetermined monetary value or involve actual cash outlays. They can include activities such as price reductions for required goods or services that can be government-supported. This allows the needed items to be purchased below the current market rate, resulting in savings for those the subsidy is designed to help.

Government Subsidies:

There are many forms of subsidies given out by the government. Two of the most common types of individual subsidies are welfare payments and unemployment benefits. The objective of these types of subsidies is to help people who are temporarily suffering economically. Other subsidies, such as subsidized interest rates on student loans, are given to encourage people to further their education.

Advantages:

Pro-subsidy economists argue that subsidies to particular industries are vital to helping support businesses and the jobs they create. Economists who promote a mixed economy often argue that subsidies are justifiable to provide the socially optimal level of goods and services which will lead to economic efficiency. In contemporary neoclassical economic models, there are circumstances where the actual supply of a good or service falls below the theoretical equilibrium level—an unwanted shortage, which creates what economists call a market failure. One form of correcting this imbalance is to subsidize the good or service being undersupplied. The subsidy lowers the cost for the producers to bring the good or service to market. If the right level of subsidization