Subsidies + Externalities

Concept: Subsidies + Externalities

Topic: Environment, Agriculture, paper III (MUST READ)

Category: Subsidies, Pollution

Related News: LM, Jan 20

CNA mentions: 1(Jan 20)

Subsidies + Externalities

In economics, an externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit. Economists often urge governments to adopt policies that “internalize” an externality, so that costs and benefits will affect mainly parties who choose to incur them. A subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from government, the term subsidy can relate to any type of support – for example from NGOs or implicit subsidies. Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, accelerated depreciation, rent rebates).


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