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Chapter 20: Q. 2 (page 489)

Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar.

Short Answer

Expert verified

Income of foreign producers of imported sugar would go down.

Step by step solution

01

Step1. Introduction

Subsidies refer to concessions, mostly monetary, given by the government to help aid and reduce cost of production of producers and hence improve their profit margin.

02

Step2. Explanation

When subsidies are given on agricultural products like sugar, it reduces the cost of production. As cost of production falls, the producers can either earn higher profits or reduce the prices and enjoy higher sales.
If the producers choose to reduce the prices, the imports will now be relatively expensive and people would demand less of imports. This would hence reduce the income of foreign producers of imported sugar, thus adversely affecting their business.

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