Lets have some examples of subsidies:
- The government may give subsidise local bus companies so they can run bus routes in rural areas without making a loss. This fixes the market failure of under-production of public transport. This is an example of a subsidy to the producers.
- The government also give subsidies to the over 60's so they can pay for fuel during the Winter. This means they can now afford to pay for the fuel to keep them warm, fixing the under-consumption there.