A government decides to give a one-time payment to a renewable energy firm to encourage start-up costs. How should this subsidy be classified?

The subsidy given to the renewable energy firm can be classified as a direct financial subsidy. This means the government is providing money directly to the firm to help them cover their start-up costs, which can include expenses like equipment and labor. By offering this one-time payment, the government aims to support the growth of renewable energy, making it easier for new companies to enter the market. For example, if a solar panel company receives $100,000 to help build their first factory, this financial support helps them start their business without needing to rely solely on loans or private investments. Overall, this type of subsidy is intended to encourage innovation and investment in clean energy solutions.