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Economic Definition of subsidy. Offline Version: PDF. Term subsidy Definition: A payment from government to individuals or businesses without any expectations of production. The best way of thinking about a subsidy is as a negative tax.
The Effects of Subsidies on the Supply & Demand Curve. A subsidy is money provided by the government to producers or consumers of a specific product. Subsidies operate as rewards to producers and consumers of a given type of product, inducing them to either produce or consume more.Subsidies distinctly affect the supply or demand curves of a product by shifting one or the other to the right.ffects of Supply Subsidies. When the government provides a supply-side subsidy to the producers of a product, the supply curve shifts to the right and the demand curve remains the same.