Finance
What is A subsidy?
A subsidy is financial support — usually from a government — given to lower the cost of a good, service, or activity. It's used to make essentials more affordable or to encourage things society wants more of, like clean energy or farming.
See it, don’t just read it.
Watch a 2-minute lesson with voice + animation that explains a subsidy.
Key things to understand
- 1It's money or a tax break that reduces the cost of producing or buying something.
- 2Governments use subsidies to support industries, lower prices, or steer behavior.
- 3Common examples include farming, fuel, healthcare, education, and renewable energy.
- 4Supporters say they protect essentials and jobs; critics say they can distort markets.
- 5They're the flip side of taxes, which raise the cost of things instead.
Frequently asked questions
- Why do governments give subsidies?
- To make essential goods affordable, support strategic industries or jobs, and encourage activities with broad benefits — such as clean energy or food production.
- What's the downside of subsidies?
- They cost public money and can distort markets — propping up inefficient producers or encouraging overuse — which is why they're often debated.
- How is a subsidy different from a tariff?
- A subsidy lowers the cost of something (encouraging more of it); a tariff is a tax that raises the cost of imports (discouraging them). They pull in opposite directions.