In the diagram in Question #19 above, suppose that a subsidy to import-competing Producers is given instead of a tariff being imposed. The subsidy is set to generate the Same amount of domestic production of the good as occurred under the tariff. What Would be the net welfare loss to the country in this situation?

Question

Quizplus · Accepted Answer

A subsidy to import-competing producers that results in the same level of domestic production as a tariff would lead to a net welfare loss equal to the production distortion, which is typically smaller than the combined production and consumption distortions caused by a tariff. In this case, the net welfare loss is $2.

In the Diagram in Question #19 Above, Suppose That a Subsidy