Question

Consider the following statements

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.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.

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