Suppose the government grants a subsidy to domestic producers of an import-competing good.The subsidy tends to result in deadweight losses for the domestic economy in the form of the

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The protective effect of the subsidy results in domestic producers being able to offer lower prices than foreign competitors, which can reduce imports and increase domestic production. However, this protection comes at a cost to domestic consumers who pay higher prices and may have reduced access to foreign goods. Additionally, the resources used to produce the subsidized good may not be the most efficient use of resources, resulting in deadweight losses for the economy.

Suppose the Government Grants a Subsidy to Domestic Producers of an Import-Competing