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I hear the words 'subsidy' and 'subsidize' sometimes. I've looked around for an answer as to what a subsidy is, but all I can find is convoluted finance jargon that means nothing to me (an average 16 year old). Can someone please explain, in layman's terms, what a subsidy is? A little example would be nice too.

3

Subsidy usually means gratuitous financial support.

For example, if for whatever reason you live much below the living average paying utility services in full might be too expensive - you'll be out of money before you even think of buying food and basic clothes. Yet it's clear that once can't live in a city without utility services.

So the government might have a program for subsidizing utility services for people with very low income - a person brings in proof of low income and once it is low enough government will step in and pay that person utility services in full or in part depending on actual income he proves.

The same can be organized for anything government or some organization wishes to support for whatever reason. The key idea is someone gives you free money for spending on some specific purpose.

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subsidy - financial support. For example subsidized housing - when the government pays a part of your rent (usually for low income families). or subsidized student loan - when somebody else is paying interest on the money you borrowed while you are in school.

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It means a government giving out money to encourage a particular product (or service) to be bought or sold.

Some people will use the word more loosely to refer to any financial incentive, even if it's not coming from the government.

Wikipedia has a list of examples that may be helpful: http://en.wikipedia.org/wiki/Subsidy

A commonly-mentioned one is farm subsidies, where farmers are paid to produce certain crops.

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A subsidy is a payment made by a group (usually the state) to individuals or corporations in order to shift the balance if the rational economic decision for the individual would be detrimental to the group as a whole otherwise.

For example, if there are different quality kinds of crops that can be planted, for example a GM maize that brings in high yields but can only be processed to High Fructose Corn Syrup or a naturally bred corn that brings lower yields but tastes well enough for direct consumption, then if demand for both exceeds supply, the economic choice for the individual farmer is to plant the former.

If the claims that HFCS contribute to obesity are founded, then it is in the public interest to produce less of it, and more alternative foods. Given that a market rather than a planned economy is desired, this cannot be achieved by decree, but rather money is used as an incentive.

In the long term, this investment may very well pay off through reduced health care costs, so it is a rational economic decision from the state's point of view.

In a world where all actors make decisions that are fully in their self interest, in principle subsidies would not be needed as consumers would demand healthy rather than cheap foods, and market mechanisms would provide these.

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