Impact of Tariffs and Subsidies on Market Efficiency

Very Hard International Economics Trade Restrictions

In the context of international trade, governments often implement trade restrictions to protect domestic industries. Trade restrictions can take various forms, including tariffs, quotas, and subsidies. These measures are typically aimed at curtailing imports and fostering local production. As an investor analyzing the effects of these restrictions, particularly in the context of the global economy, consider the complex interplay between protective measures and the overall economic welfare of nations.

Which of the following statements accurately describes a potential consequence of imposing tariffs on imported goods while simultaneously subsidizing domestic industries?

Tariffs would decrease domestic producers' costs, resulting in a higher competitive advantage for local industries.

Subsidies would increase the inefficiency in domestic market by reducing the need for producers to innovate.

Combined tariffs and subsidies would lead to a net increase in consumer surplus in the domestic market.

Hint

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