Briefly describe the new trade theory. Subsidies are a trade policy instrument.

ID: 1210143 • Letter: B

Question

Briefly describe the new trade theory.

Subsidies are a trade policy instrument.

True or False

Tariffs are the oldest instrument of trade policy.

True or False

Which of the following statements with regard to subsidies is true?

a. The main gains from subsidies accrue to domestic producers whose international competitiveness is increased as a result.

b. Pharmaceutical industry tends to be one of the largest beneficiaries of subsidies in most countries.

c. Subsidies always generate national benefits that exceed their national costs.

d. Subsidies comprise only of cash grants and low-interest loans.

e. Subsidies never help a firm achieve a first-mover advantage in an emerging industry.

The statement is TRUE. Subsidies are a trade policy instrument.

The statement is TRUE. Tariffs are the oldest instrument of trade policy.

The correct answer is option (c). Subsidies always generate national benefits that exceed their national costs.

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