protectionism - subsides

Question 1

what are subsidies?

Answer 1

Payments are given to domestic businesses to help lower costs of production

Question 2

how do subsidies affect a business’s ability to sell overseas?

Answer 2

subsides = offsetting production costs
- increases profit made on every unit
- allows exporters to reduce prices without making a loss = products are cheaper

Question 3

advantages of subsidies

Answer 3

• raises demand for local producers = increase revenue
• increases competitiveness on the international market = lower prices

Question 4

disadvantages of subsides

Answer 4

• expensive for the government
• Businesses may become inefficient as they know as they know their costs are being subsidised