Suppose there are monopoly profits in the production of airplanes, but two countries are each determined to capture the industry. When one country subsidizes its domestic firm, the other country matches the tactic. As a result, both firms stay in business. Consider the effects on firms, consumers, and taxpayers. Who gains and who loses?

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Business

Yaretzi Sheppard

10 April, 07:38

Suppose there are monopoly profits in the production of airplanes, but two countries are each determined to capture the industry. When one country subsidizes its domestic firm, the other country matches the tactic. As a result, both firms stay in business. Consider the effects on firms, consumers, and taxpayers. Who gains and who loses?

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Irvin Villarreal · Answer 1

The airplane industries will benefit from these policies since they are receiving a subsidy ($$$) which lowers their costs and increases their profits.

Consumers gain if the price of the airplanes is lower due to the subsidies, but if the subsidies do not lower the selling and just benefit the manufacturers, then they will not gain anything.

Taxpayers will lose because the money used to pay subsidies comes from them since the government manages the taxpayers' money.