Subsidy
Plain definition
A subsidy is a government payment that lowers the effective cost of producing or consuming a good — paid to producers, consumers, or tied to each unit traded. It shifts the relevant curve outward, raising quantity traded and lowering the price buyers pay (or raising the price sellers receive).
In economics
Subsidies are the mirror of taxes: they encourage activity the government wants more of (vaccines, education, green energy) but they also distort markets, creating deadweight loss from overproduction — quantity pushed beyond the efficient level. The benefit is split between buyers and sellers according to relative elasticities, exactly like tax incidence in reverse.
Example
The government pays farmers 5 rupees per litre of milk produced. Supply shifts down by 5 rupees, the market price falls, families buy more milk, and farmers receive the market price plus 5 — but taxpayers fund the gap, and the extra litres valued below their cost are a deadweight loss.
Subsidies are often assumed to be pure gain — free help with no downside. But every subsidy must be financed (usually by taxes that carry their own deadweight loss), and the subsidy itself pushes quantity past the efficient point, destroying surplus on the overproduced units. The question is never whether subsidies cost anything, but whether the benefit outweighs the cost.