How does a subsidy affect market efficiency and consumer surplus?

A subsidy is money that the government gives to businesses to help lower their costs, which can make products cheaper for consumers. When a subsidy is provided, companies can produce more goods at a lower price, leading to an increase in supply. This usually results in a higher quantity of goods being sold and lower prices for consumers, which can improve consumer surplus—the extra benefit consumers get when they pay less than what they are willing to pay. However, while subsidies can help consumers in the short term, they might also lead to inefficiencies in the market, such as overproduction or misallocation of resources. For example, if the government gives a subsidy to corn farmers, it may encourage too much corn production, which could affect other crops and lead to an imbalance in the agricultural market.