A production subsidy that is granted to a producer of an import-competing good ?
Correct answer: D. has only a protective effect deadweight loss
- A. does not require government taxes to finance it
- B. yields the same deadweight welfare loss as an import tariff or import quota
- C. has only a consumption effect deadweight loss
- D. has only a protective effect deadweight loss
Explanation
A production subsidy for an import-competing good encourages inefficiently high domestic production but does not directly reduce domestic consumption. Its deadweight loss therefore comes only from the protective, or production, effect.
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