What is the purpose of subsidies?

• A. To increase taxes on consumers
• B. To encourage production of a good that would be too expensive to produce
• C. To reduce government involvement in markets
• D. To regulate the stock market

Answer: (B)

Subsidies are payments from the government to producers designed to lower their cost of producing a good. The goal is to make production profitable for goods that would be too expensive to produce at market prices, thereby encouraging higher output and helping ensure supply. By reducing per-unit production costs, subsidies shift the incentive for firms to expand production, often also helping keep prices more stable for essential goods and supporting domestic jobs. The other ideas don’t fit: subsidies aren’t intended to raise taxes on consumers, they involve more government support rather than less, and they have nothing to do with regulating the stock market.