A subsidy is a grant given by government to encourage the production or consumption of a particular good or service.

... TOPIC 2 A subsidy is a grant given by government to encourage the production or consumption of a particular good or service. (Anderton, 1999, P70) Subsidy, along with taxation, is known as an important form of government intervention in the market. Subsidies, for example, could be given on essential industries as housing and salt. Alternatively, they may be given to firms that employ disadvantage workers, such as people with disabilities. Governments may also subsidise firms to protect domestically produced goods in competition with imported goods. A subsidy will lead to a shift in the demand or supply curve, in turn this will affect the market equilibrium price level and equilibrium output of a good or service. The effect of a subsidy is depends on which side of the market, for example, buyers or sellers, is subsidised. The benefit generated from the subsidy will also be shared between consumers and producers according

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