Economics 101 What Are Subsidies
Economics 101 What Are Subsidies

Economics 101. What are resources?

Learn 5 General Types of Government Resources and How to Distribute Understanding

how resources are needed is essential for anyone trying to start a business in any field.

What is government support?

Government assistance is the provision of financial resources to private government institutions or other public entities to stimulate the economy or to promote public interests. The grants encourage private companies to engage in financial activities that the government considers state-owned. Government spending on subsidies affects all parts of the world economy. Assistance is provided to federal or national governments by local governments. The U.S. market is technically free but US government-led subsidies have a major impact on market prices and economic growth.

Economics 101 What Are Subsidies

5 Common Types of Government Subsidies

There are many forms of subsidies which can be divided into five categories:

1. Export subsidies. Export subsidies refer to the financial support provided by the government to export goods to foreign countries. Export subsidies apply when raw materials are exported. Exporters report their exports to the government and the government compensates them. Export subsidies can be used to increase a countrys trade surplus or reduce its trade deficit. The World Trade Organization (WTO) currently does not allow most export subsidies but allows the U.S. federal government to implement several subsidy programs to help U.S. farmers compete with foreign exporters.

2. Agricultural subsidies. The federal government including the United States often subsidizes agriculture to protect domestic food prices. For example the US federal government pays farmers through price assistance programs to keep production synchronized with demand and demand to stabilize food prices and to ensure that food production is not wasted.

3. Oil subsidies. Oil subsidies have been created to lower the price of oil for consumers. Oil subsidies have historically made up a large portion of the US federal budget since World War I but President Obama cut oil subsidies during his tenure.

4. Housing subsidies. Housing subsidies offer citizens the opportunity to have a home through interest rate subsidies and advance payments. The most common interest subsidy used by homeowners is the mortgage interest deduction which is a tax deduction calculated annually based on the federal tax return. The government also provides financial assistance in the form of matching funds for low-income families with advance payments.

5. Medical assistance. One of the largest portions of the U.S. federal budget with nearly 26% registrations in 2017 is devoted to providing direct medical care to Americans through programs such as Medicare Medicaid and CHIP. Other forms of state health subsidies include funding for medical research and payment for the development and testing of prescription drugs.

How does the government distribute subsidies?

There are many ways to secure government subsidies. Depending on the target area and the type of grant recipient one of the following forms will appear:

• Cash grant. Cash grants The government should provide some amount directly to a business or entity. An example of a regular cash subsidy in the United States is available in the renewable energy lease sector – cash subsidies are given to private businesses in the renewable energy lease to stimulate industry growth.

  • Tax concessions. Tax breaks occur when governments reduce the tax burden on companies or businesses. This often takes the form of a tax credit or incentive when certain obligations are met. Tax concessions are the most common form of subsidy used annually by large and small businesses and individuals.
  • Risk Assumptions This type of assistance usually takes the form of government loans to companies with favorable terms to the recipient. The government will lend to companies in the industry that want to support interest rates that are sometimes lower than the cost of government borrowing.
  • Government Procurement Policies Government. Procurement policies require the government to purchase products directly from manufacturers. Most government procurement in the United States is covered by agricultural subsidies. Disaster has historically plagued the US The government has chosen to buy large quantities of crops from farmers to increase production and conserve stocks in the event of a natural disaster or drought.
  • Search for inventory purchases. Occasionally government subsidies take the form of buying shares to keep a company’s share price above a certain level. This type of assistance can sometimes be applied during an economic crisis to keep large companies afloat.

Whether you have just started a business or taken on your ambitions at the corporate level success requires an understanding of business economics and strategy. Learning to think like an economist takes time and practice. For Nobel laureate Paul Kirgman economics is not a collection of answers – it is a tool.

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