Question

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

Explanation:

To determine the correct answer, we analyze each option:

• A subsidy is a government payment to domestic producers. This helps reduce their production costs, allowing them to sell goods at lower prices. So "It keeps the price of domestic goods relatively low" matches the purpose of a subsidy.
• Raising the price of imported goods is done by tariffs, not subsidies.
• Subsidies support domestic production, so they don't encourage importing foreign goods.
• Subsidies don't eliminate all taxes on domestic goods; they are a form of financial support, not tax elimination.

Answer:

A. It keeps the price of domestic goods relatively low