Final answer:
A subsidy is a government financial assistance to producers that lowers production costs and shifts the supply curve to the right, which can reduce the market price of the product such as sugar, potentially affecting foreign producers negatively.
Step-by-step explanation:
A subsidy is a form of financial assistance provided by the government to producers, effectively functioning as a reduction in production costs. When a subsidy is introduced, the supply curve of the subsidized product, such as sugar, shifts downward or to the right. This happens because the subsidy lowers production costs, leading to an increase in supply at every price level, hence driving the market price down. If the subsidy is significantly large, it might cause the price of sugar to drop below the production costs of foreign producers, potentially causing them to incur losses on the sugar they produce and sell.