-Refer to Figure 15.3. The diagram shows how the provision of a subsidy for domestic producers:

Question

Quizplus · Accepted Answer

The provision of a subsidy for domestic producers increases domestic production, which reduces the reliance on imports as domestic goods become more competitive in price. It allows consumers to continue purchasing goods at a price that is competitive with the world price due to the subsidy lowering the effective cost of production for domestic producers. This can lead to a misallocation of resources, as it encourages the production of goods domestically that could be produced more efficiently abroad, thus replacing lower-cost imports with higher-cost domestic output.