When government gives financial help to production units for selling their products at lower prices fixed by the government, what is it called?

The correct answer is 2) Subsidy.

Key Points

• A subsidy is a financial assistance provided by the government to individuals, businesses, or institutions to promote economic and social policies.
• Subsidies help make products and services more affordable by reducing their production costs and thereby lowering market prices.
• Government subsidies are often provided to essential sectors such as agriculture, energy, and education to stabilize prices and ensure the availability of crucial goods and services.
• Subsidies can take various forms, including direct cash payments, tax breaks, or price supports, and are aimed at achieving specific economic objectives.

Additional Information

• Minimum Support Price (MSP):
  • MSP is the price at which the government purchases crops from farmers, regardless of the market price, to ensure they receive a minimum profit for their harvest.
  • It is announced by the government before the sowing season based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
• Tax Rebate:
  • A tax rebate is a refund on taxes when the tax liability is less than the taxes paid.
  • It serves as a financial relief mechanism for taxpayers and can be issued in various forms, such as direct refunds or reductions in future tax liabilities.
• Discount:
  • A discount is a reduction in the price of goods or services, usually offered by sellers to attract customers or clear out stock.
  • Unlike subsidies, discounts are provided directly by businesses rather than the government.
• Price Controls:
  • Price controls are regulatory measures implemented by the government to set maximum or minimum prices for specific goods and services.
  • These controls aim to prevent inflation, protect consumers, and ensure affordability of essential commodities.