Which of the following statements BEST describes the effects of subsidies?
A) A subsidy essentially lowers the prices of foreign goods rather than raising the prices of domestic goods.
B) A subsidy essentially raises the prices of domestic goods rather than lowering the prices of foreign goods.
C) A subsidy essentially lowers the prices of domestic goods rather than raising the prices of foreign goods.
D) A subsidy essentially raises the prices of foreign goods while also raising the prices of domestic goods.
E) A subsidy essentially lowers the prices of foreign goods while also lowering the prices of domestic goods.

Question

Quizplus · Accepted Answer

A subsidy is a payment made by the government to producers of a particular good or service, which lowers their costs of production. This allows them to lower their prices and be more competitive in the market. Therefore, a subsidy essentially lowers the prices of domestic goods rather than raising the prices of foreign goods. This is because the subsidy is only given to domestic producers, and foreign producers do not receive any benefit from it.

Which of the Following Statements BEST Describes the Effects of Subsidies