Subsidies and indirect tax

Question 1

Why do are subsidies provided?

Answer 1

• Encourage demand for a good

Question 2

What is a subsidy?

Answer 2

Money paid by the government to the producer of a good to make it cheaper than it would be otherwise.

Question 3

Why are taxes used?

Answer 3

• Governments place tax on a good ( called indirect taxes ) to reduce the demand for it.
• Presence of a tax on a good aims to discourage people from purchasing it as the tax raises the market price.