How do subsidies distort trade patterns and lead to inefficiencies?
With subsidies, producers will export goods not because their costs are lower than those of a foreign competitor but because their costs have been artificially reduced by government action, transferring income from taxpayers to the exporter. The subsidy does not reduce the amounts of actual labor, raw material, and capital costs of production?society has the same opportunity costs as before. The nation's taxpayers end up subsidizing the output of producers who, relative to producers in other countries, are inefficient.
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One of the methods of reducing the geographical disadvantage faced by poorer countries is:
A) by moving to a socialist economic system. B) by undertaking large-scale disease eradication programs. C) by borrowing financial resources at market interest rates. D) by reducing participation in international trade.
The use of seat belts and other automobile safety features making bicycling more hazardous can be explained by the economic concept known as
A) the principle of diminishing returns. B) the principle of voluntary exchange. C) the real-nominal principle. D) the marginal principle.