Question

We analyze the situation when a small country introduces a tariff (t) equivalent to the production subsidy (s) to produce some good in which it has no comparative advantage compared to the rest of the world. This policy is:
(a) less effective than the subsidy, as it also causes production loss,
(b) less effective than the subsidy, as it also causes consumption loss,
(c) more effective than a subsidy because it does not cause a loss of consumption,
(d) more effective than a subsidy because it does not cause a loss of production,
(e) it is difficult to say without knowing the budgetary position of the country concerned.

Answer 1

Answer)

We analyze the situation when a small country introduces a tariff (t) equivalent to the production subsidy (s) to produce some good in which it has no comparative advantage compared to the rest of the world. This policy is:
(a) less effective than the subsidy, as it also causes production loss,

Option a is correct since the country produces the good in which it has no comparitive advantage,there will be production loss.

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