Question

which best describes what a subsidy does? it encourages the import of foreign goods. it keeps the price of domestic goods relatively low. it raises the price of imported goods. it eliminates all taxes on domestic goods.

Explanation:

A subsidy is a government incentive to support domestic producers. By subsidizing domestic goods, the production cost decreases, so the price of domestic goods can be kept relatively low. Let's analyze other options: Eliminating all taxes on domestic goods is not what a subsidy does (subsidy is a payment, not tax elimination). Raising the price of imported goods is a tariff's role, not a subsidy. Encouraging import of foreign goods is opposite to what a subsidy aims (subsidy supports domestic production, reducing the need to import foreign goods). So the correct description is that a subsidy keeps the price of domestic goods relatively low.

Answer:

It keeps the price of domestic goods relatively low.