subsidies

• financial assistance provided by the government to encourage the production or consumption of certain goods and services
• they aim to correct market failure by promitting the provision of public goods and services
• they correct correct positive externalities like generating benefits as it reduces cost of production and encourages more supply
• subsidies are used when there is an externality, where the price does not reflect social costs and prices do not accurately represent true costs
• example of subsidies:

  • agricultural subsidies are common world wide to ensure a stable food supply and prevent market failures relating to food scarcity