Learn a thing or two on Subsidy

What is subsidy?

Subsidy is an amount of money paid to a seller by an individual or government in order to reduce the price at which people buy his commodity. For instance, I am selling a bag of

Garri for 300 Naira, Mr. Edet comes to me saying that I should start selling the bag of garri for 250 Naira so that people can afford it, In essence, he is asking me to deduct 50 naira from the actual price. But how will I recover the 50 Naira that i'l lose? Mr. Edet will have to pay me some amount of money to cover for my 50 naira, and then I can start selling at 250 naira. The amount Mr. Edet will eventually pay to me to start sales at 250 naira is what is called subsidy. So, when your local government sells you bags of fertilizers worth 10,000 naira for 5,000 naira, then we can say that the local government have paid subsidy of 5,000 naira for us.

What is fuel subsidy?

Fuel subsidy is the amount the federal government pays to independent marketers (sellers of fuel), So that they can sell fuel at a cheaper price to us. Without fuel subsidy the price of fuel would cost more than it is with subsidy. This is how it works, Mr. Ali goes to America, buys fuel for 100 naira, he brings it to Nigeria to sell, summing up all costs incurred while buying the fuel from America,i.e; transportation, tariffs charged by customs and profit, Mr. Ali would want to sell the fuel at 140 Naira per litre. The government noticing that Nigerians can't afford 140 Naira per litre tells Mr. Ali to sell the fuel at 97 naira per litre. 43 Naira has been paid by the Government, this amount paid to Mr. Ali for making the fuel cheap is what we call fuel subsidy. Comment box still widely open.