Question

Governments use subsidies

A) as a means of increasing government spending.
B) when they want to increase taxes.
C) to achieve an efficient outcome in a market with external costs.
D) to achieve an efficient outcome in a market with external benefits.
E) and pollution permits to achieve an efficient outcome in markets with external benefits.

Answer 1

A government subsidy is a financial support or benefit given by the government to a firm or industry to incentivize certain actions or reduce business costs. Subsidies can take various forms and are used to promote economic activities and achieve policy objectives.

Step-by-step explanation:

A government subsidy is a financial support or benefit given by the government to a firm or industry to encourage certain actions or reduce business costs. Subsidies can take the form of direct payments, tax reductions, or other incentives. They are used by governments to promote specific economic activities or achieve desired outcomes such as increased production, job creation, or the development of certain industries.

An example of a government subsidy is when the government provides funding to support research and development in the renewable energy sector. This subsidy helps reduce the cost of production for renewable energy companies and encourages the development of clean energy technologies. Another example is agricultural subsidies, where the government provides financial assistance to farmers to stabilize food prices, improve food security, and support rural development.

In summary, government subsidies are employed as a means to incentivize desired actions or reduce business costs, leading to increased supply, economic growth, and the achievement of specific policy objectives.