An input subsidy can reduce production costs, encourage output, and lower the market price of the commodity.

### Why this is right The note explains that subsidizing inputs lowers production costs. Lower costs encourage supply, and the resulting increase in supply can raise output and reduce the market price. ### The concept A subsidy is support that makes an input or equipment available for less than its market price. Producers benefit from reduced costs and increased output, while consumers may benefit from a lower commodity price. How the benefits are divided depends on demand and supply responsiveness. ### Terms - **Subsidy**: government support that lowers the effective cost of an input or product. ### Remember An input subsidy works through producer costs and the supply curve.