CA Foundation · Business Economics · International Trade
The Government of India gives a per-unit production subsidy to domestic steel producers, so that they can compete with cheaper imported steel. Which of the following is the most likely immediate effect on the domestic producers?
A per-unit production subsidy lowers the effective cost of production for domestic steel producers, so their supply rises at every price. This makes them more competitive against cheaper imports. The subsidy works by reducing costs, not by raising them or by fixing output.
- ATheir effective cost of production falls and their supply increasesCorrect
- BTheir cost of production rises and their supply decreases
- CTheir exports become illegal under trade rules
- DTheir output is fixed by the government at a given quota
Explanation
A per-unit subsidy reduces the producer's effective cost per unit. Lower costs shift the supply curve to the right, so the producers can supply more at each price and compete better with imports. Option B has the direction of the cost effect wrong.
Did you get it right without looking?
One question tells you little. A timed set on International Trade shows your real accuracy, how long you take and where you lose marks.
More International Trade questions
- According to the Heckscher-Ohlin theory, a country with abundant labour and scarce capital will tend to:
- The Leontief paradox is the finding that:
- A government grants a per-unit subsidy to domestic producers of steel that compete with imports, instead of imposing an import tariff. Compa…
- According to the theory of comparative advantage, two countries can gain from trade when they differ in which of the following?
- India's balance of trade shows imports exceeding exports in a given quarter. Which of the following best explains what this indicates about …
- In one hour of labour, India can produce either 8 units of wheat or 4 units of cloth. In one hour, Nepal can produce either 3 units of wheat…