Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They decrease production efficiency and reduce comparative advantage.
B
They encourage domestic production, potentially enhancing comparative advantage.
C
They have no effect on comparative advantage.
D
They lead to a complete shift in comparative advantage to other countries.
Understanding the Answer
Let's break down why this is correct
Answer
Per unit subsidies are financial support given by a government for each unit of a good produced, which lowers the production cost for businesses. When a country provides these subsidies, it can produce goods more cheaply than other countries, making its products more competitive in international markets. This change can enhance the country's comparative advantage, which is the ability to produce certain goods at a lower opportunity cost than others. For example, if Country A gives a per unit subsidy for wheat production, it can sell wheat at a lower price than Country B, encouraging more exports. As a result, Country A may shift resources to wheat production, specializing in it and benefiting from trade even more.
Detailed Explanation
Per unit subsidies help lower production costs for local businesses. Other options are incorrect because Some might think subsidies make production less efficient; It's a common belief that subsidies don't change anything.
Key Concepts
per unit subsidy
government intervention
comparative advantage
Topic
Per Unit Subsidies in Economics
Difficulty
hard level question
Cognitive Level
understand
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