What is a subsidy?

A subsidy refers to financial assistance provided by the government to support or stimulate a particular economic activity or industry. This intervention is designed to encourage production, reduce costs for consumers, or promote activities deemed beneficial for society, such as renewable energy initiatives, agriculture, or education. By offering financial support, the government can help lower the prices of goods or services, making them more accessible to consumers, or support businesses in achieving sustainability and growth.

In contrast, the other options focus on concepts that do not encapsulate the essence of a subsidy. For instance, a tax used to decrease production suggests a negative financial instrument, while a fee for government services indicates a charge rather than assistance. Meanwhile, a penalty for failing to produce goods implies a punitive measure rather than a supportive one. Thus, the definition of a subsidy as a form of financial assistance is what makes this option the correct choice.