A payment by a government to encourage the development of certain key industries is called what?

• A. Subsidy
• B. Tax
• C. Direct Taxes
• D. Indirect Taxes

Answer: (A)

Subsidies are payments from the government to producers to encourage the development of a particular industry by lowering costs or increasing revenue. When the government helps cover part of the production cost, firms can produce more at a lower price, which can boost output and help the industry grow. Subsidies are often used for sectors with positive externalities or strategic importance, such as farming, renewable energy, or new technology. This concept contrasts with taxes, which take money away from individuals or firms; indirect taxes and direct taxes are forms of taxation, not payments to support production. So the described payment is a subsidy.