Examkin

Soru

Zorluk: OrtaCommercial Policy and Trade Barriers (Tariffs, Quotas, Embargoes, and Subsidies)

An economy replaces an import tariff with a direct domestic production subsidy of equivalent value to protect its domestic manufacturing sector. Which of the following describes the main economic advantage of this policy shift for domestic consumers?

  1. Domestic market prices remain unchanged, avoiding consumer surplus lossCevap
  2. B
    Government revenue increases from the additional tax levy on local producers
  3. C
    Foreign suppliers face a complete legal prohibition on entering the domestic market
  4. D
    The country automatically gains an absolute advantage in manufacturing over all trading partners

Cevap

Domestic market prices remain unchanged, avoiding consumer surplus loss
Unlike tariffs, which artificially raise consumer market prices above the world market level and reduce consumer surplus, domestic production subsidies lower local producers' unit costs while allowing consumer prices to stay at the competitive world market level. Therefore, domestic consumers avoid loss of surplus.

Adım Adım Çözüm

1
Analyze the market effect of an import tariff
An import tariff raises the domestic market price of both imported goods and competing domestic goods above the world price, causing consumer surplus loss and consumption distortion.
Tariffs act as a tax on consumption of foreign goods, elevating the market clearing price.
2
Analyze the market effect of a domestic production subsidy
A production subsidy directly lowers local producers' cost of production, allowing them to expand output while selling at the prevailing market price.
Subsidies target producers directly rather than imposing a price surcharge on buyers.
3
Compare consumer welfare outcomes between the two instruments
Because market prices do not rise under a subsidy, domestic consumers do not suffer the consumption deadweight loss associated with tariffs.
This represents the primary efficiency advantage of production subsidies over tariffs from the consumer perspective.

Anahtar Kavram

Welfare effects of tariffs versus production subsidies
Bu soruyu puanla

Konular

Commercial Policy and Trade Barriers (Tariffs, Quotas, Embargoes, and Subsidies)

Bu konudan daha fazla soru