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--THINK AHEAD
--THINK AHEAD
We know from unit 2.7 that production subsidies are payments granted to domestic producers by the government per unit of output sold domestically which allows them to lower their costs of production and produce more right? "So how can they be used as a protectionist tool?"
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--THINK AHEAD & SKETCH!--
--THINK AHEAD & SKETCH!--
"Go to the padlet below, choose one of the pages and type you name at the top, then sketch an international trade diagram showing an importer, then use your knowledge of the subsidy diagram from unit 2.7, to illustrate the use of a production subsidy as a protectionist tool." "Just have a go!!!"
"Don't 🫣"↓
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--MARKET EFFECTS--
--THINK AHEAD & SKETCH!--
--THINK AHEAD & SKETCH!--
"We know from the model that the subsidy increases domestic output, so that the shortage is reduced, but what would happen if the subsidy was so large that domestic output actually created a 'surplus'?"
"Don't 🫣"↓
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--WELFARE EFFECTS--
--WINNERS & LOSERS--
--WINNERS & LOSERS--
-WHY SUBSIDIES ARE PREFERRED-
The EFFECTS of PRODUCTION SUBSIDIES ARE NOT AS HARMFUL AS those of TARIFFS and QUOTAS, because while they all encourage inefficient domestic production, ONLY SUBSIDIES HAVE NO NEGATIVE EFFECT ON CONSUMPTION (NO LOSS OF CONSUMER SURPLUS).
--EXPORT SUBSIDY--
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