Suppose the government spends $10 billion subsidizing firms producing electricity with wind turbines because these firms are high cost producers. Will the subsidies lead to economic growth and higher income levels?
a. Yes, because more people will be employed by the firms producing electricity with wind turbines.
b. No, the turbines are an inefficient form of producing electricity and therefore the subsidies will increase the opportunity cost of supplying it.
c. Yes, because the government will be able to finance the subsidies without reducing private sector output.
d. Uncertain, higher income levels will be achieved if the employment of the firms producing electricity with the wind turbines expands; if not, incomes will fall.
b. No, the turbines are an inefficient form of producing electricity and therefore the subsidies will increase the opportunity cost of supplying it.
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