Future Business Leaders of America (FBLA) Agribusiness Practice Test

What do Subsidies refer to in economics?

1. Private loans

2. Government grants to support enterprises

3. Tax increases

4. Private sector investments

The correct answer is: Government grants to support enterprises

Subsidies in economics refer specifically to government grants or financial support aimed at assisting businesses or sectors within the economy. These grants are designed to help reduce the cost of production or increase the availability of certain goods and services. When the government provides subsidies, it effectively lowers the prices for consumers and encourages the production of goods that may be deemed beneficial for the economy, such as renewable energy, agriculture, or education. The rationale behind subsidies is often to promote economic growth, support small businesses, level the playing field for competition, or encourage activities that have positive externalities — benefits to society that aren't reflected in market prices, such as environmental protection or job creation. The other options, while relevant to economic activity in general, do not encapsulate the specific definition of subsidies. Private loans and private sector investments pertain to capital funding sources that businesses can seek, but do not involve direct government support. Tax increases relate to government revenue generation rather than financial support for enterprises.