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How would direct subsidies to key industries be preferable to tariffs or quotas?
It is considered that providing subsidies to these industries is a better idea than having barriess because these barriers have two bad effects ie, they increase the economic deaculueight loss because of increase in prices which leads to decrease in consumer surplus more than icrease in producer surplus, and it the disturbs the relaitingship conntries have with each other So, providing subsidy keeps the consumer surplus high as before and helps producers as well.
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Chapter 20
Globalization and Protectionism
Introduction
How Markets Work
Markets and Welfare
The Economics of the Public Sector
Topics for Further Study
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when you impose a subsidy that essentially means a shift of the supply curve to the right. So when you have the shift of the supply curve, you have an increase in the quantity provided. Now, let's just keep this in mind for a little bit while we talk about tears when we impose a tariff. On the other hand, it's just a shift in the supply curve to the left, and what that causes is a decrease in quantity. So when we are talking about, we're, um, why subsidies might be preferable to tariffs or quotas. It's because when you impose a subsidy, you still have enough access to the consumer, or the consumer still has enough access to the product over here, um, it still meets that equilibrium point and some more. But when you impose tariffs, it's no longer at that original equilibrium point that was beneficial to, um, society. It's still beneficial here at this new equilibrium point. But not all consumers have access to whatever is provided for
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