Question

Consider the following statements

1. Subsidies are aimed at poverty eradication and promote better human development
2. Subsidies encourage economic development

Which of the above are correct?

• A. 1 only
• B. 2 only
• C. Both 1 and 2
• D. None of the above

Answer 1

The correct option is C Both 1 and 2

A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government or a targeted tax cut.In economic theory, subsidies can be used to offset market failures and externalities in order to achieve greater economic efficiency.

Need for Subsidies:
-Improved production/Promoting better inputs
-Achieve social objective-Poverty eradication,Electricity , education and health care
-Price control
-Reduce inflation
-Increasing efficiency
-Export promotion

However, critics of subsidies point to problems with calculating optimal subsidies, overcoming unseen costs, and preventing political incentives from making subsidies more burdensome than they are beneficial.