ECONOMICS
BARRIERS TO TRADE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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keep prices low for consumers
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involves government payments to businesses
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reduces domestic jobs
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allow domestic producers to compete at lower market prices
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Detailed explanation-1: -A subsidy will shift the supply curve to the right and therefore lower the equilibrium price in a market. The aim of the subsidy is to encourage production of the good and it has the effect of shifting the supply curve to the right (shifting it vertically downwards by the amount of the subsidy).
Detailed explanation-2: -Disadvantages of Subsidies Though one of the advantages of subsidies is the greater supply of goods, a shortage of supply can also occur. This is because lowered prices can lead to a sudden rise in demand that many producers may find very hard to meet.
Detailed explanation-3: -Thus, it can put an excessive burden on the scarce government’s finances. Hence, suitable reforms are needed in order to ensure allocation of subsidies in a targeted manner only to the needy farmers. Q. While subsidies encourage farmers to use new technology, they are a huge burden on government finances.
Detailed explanation-4: -Some advantages of subsidies include inflation control and moderation of supply and demand, while disadvantages include a potential increase in taxes on citizens in subsidizing countries.