Because consumer decisions have not been affected, the production subsidy causes a _______ net loss than the export subsidy.
A) somewhat larger
B) significantly larger
C) smaller
D) similar

Question

Quizplus · Accepted Answer

When a production subsidy is given, the producers receive financial assistance, allowing them to reduce their costs of production and thus lowers the prices of the goods. This attracts more customers, and the producers enjoy larger production and ultimately earn more profits. Since the consumers are not directly affected by the subsidy, their decisions related to the purchase remain unchanged. Thus, the producers enjoy the benefits of the subsidy without any shift in the consumer's behavior, resulting in a smaller net loss than the export subsidy, where the producers may not benefit significantly.

Because Consumer Decisions Have Not Been Affected, the Production Subsidy