Abstract For Government Subsidies

1367 Words6 Pages

5TH MARCH 2018

Government subsidies include financial aid. The government extends to the market economy to promote economic and social policy. The subsidies can be tax breaks, interest-free loans and rent rebates among many others. People argue that subsidies lead to increased taxation to fund these subsidies, but there are different ways of funding subsidies such as taxing more goods and services with negative externalities and leap the benefits including boosting of some industries, correction of externalities, and regulation of the monopoly of power. Government subsidies boost some industries by increasing the demand and supply of the goods and services of those industries. Also, the government subsidies correct externalities by encouraging consumption of merit goods and services and encouraging companies with negative externalities to adopt production processes with positive externalities. Additionally, subsidies regulate monopoly of power by strengthening start-ups and business growth thereby creating competition.

Government Intervention; Subsidies
In the free market, the price mechanisms determine the allocation of resources and spending and preferences of the consumers and supply decisions of businesses intersect thereby determining the equilibrium prices. Since of the price, mechanisms determine resource allocation, inefficiency arises.

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