Question

Is there any disadvantage to a government subsidizing domestic firms to make them able to compete in price with cheaper imported goods?

A.
No, it helps domestic consumers, firms, and workers.
B.
No, the only ones who suffer are the foreign firms.
C.
Yes, consumers must pay higher prices.
D.
Yes, consumers must pay higher taxes.

Answer 1

The correct answer is D.

When public money is directed to subsidize domestic firms, these are able to compete with cheap imports, because subsidies decrease productions costs and enables companies to fix lower prices for their products.

Such public expenditure needs to be financed somehow, and the most effective manner used by the goverment to raise funds is through taxes.