A subsidy is a financial assistance given by the government to producers, usually in the form of a payment for each unit produced. It aims to lower production costs and increase supply.
Related terms
Producer surplus: The extra profit earned by producers due to receiving a subsidy.
Price floor: A minimum price set by the government, often accompanied by a subsidy, which prevents prices from falling below a certain level.
Deadweight loss: The inefficiency that occurs when resources are misallocated due to market interventions like subsidies.