What is a subsidy?

A subsidy is a financial aid provided by the government to support or stimulate certain sectors of the economy. It is designed to lower the costs of production or consumption for goods and services. By offering subsidies, governments aim to make essential products more affordable, encourage growth in particular industries, or promote social objectives such as sustainability and job creation.

The correct choice highlights that subsidies involve money from the government to help businesses maintain lower prices for goods or services. This ensures that consumers can access these goods more affordably, which is especially important in sectors where the market may not provide these prices without assistance.

In contrast, the other options describe different financial mechanisms or measures. For instance, government funding to raise prices does not accurately capture the purpose of a subsidy, which is to lower prices rather than increase them. A tax levied on businesses represents a burden rather than a financial aid, and a financial penalty for non-compliance refers to enforcement mechanisms rather than supportive measures. Thus, the definition of a subsidy as provided in the correct choice aligns with its intended purpose within economic policy.