Question

Which of the following is false about subsidies?

A. One of the largest beneficiaries of subsidies in most countries is Agriculture.

B. They are government payments to domestic producers.

C. Subsidies can hurt domestic producers by decreasing competition against foreign imports.

D. Subsidies can take forms such as cash grants, loans, and government equity participation.

Answer 1

Solution: C. Subsidies can hurt domestic producers by decreasing competition against foreign imports.

Subsidies are a help provided by the government to uplift the condition of the consumers in the market or the firms. The objective behind the financial help provided by the government is to encourage production as well as consumption.

Consumers in the market are benefited by the subsidy as the prices are reduced. On the other hand, producers are benefited for the output they are producing as they are getting more price. Hence subsidy is beneficial for both consumers and producers in the market.

Subsidies are provided in the form of cash grants,loans and equity etc.  

Subsidies help the domestic producers by helping them to compete with the foreign imports. Hence subsidy cannot hurt the domestic producers instead it helps them

Hence it is an incorrect statement that subsidies hurt domestic producers by decreasing competition against foreign imports.