The effects of a government subsidy (defined by
Webster 1913 as "A grant from the government, from a municipal
corporation, or the like, to a
private person or
company to assist the establishment or support of an enterprise deemed advantageous to the
public") can be drawn on a simple
supply and demand curve.
£+ \ /S1 /S2
+ \ / /
+ A x /
+ / \ /
+ / x B
+ / / \
+ / \D1
++++++++++++++++++++++
0 QTY
As the subsidy results in some of the production costs being paid for by the government, the producers will be happy to increase their output. This is shown by the expansion of supply from S1 to S2. Assuming that demand remains constant at D1, the equilibrium position will shift from A to B, leading to a lower equilibrium price and higher equilibrium output.
An example of a subsidised industry is farming, where the EU will subsidise uncompetitive farmers to keep them in the market, preventing urban migration.
(thanks to dann for help!!)