vi) as we know subsidies affects the distribution of income as well as price and
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vi) as we know subsidies affects the distribution of income as well as price and employment as well. as firms gives more subsidies to there respective producer they starts moving from a perfect competitive situation and becomes a monopoly mainly in world market. as the cost of production starts to decline in the firm where subsidies are being given they can now charge a price much lower than the world price to drive competitions out of the market. this is the way subsidies affect a perfect competitive agricultural market also.
vii) as i have explained subsidies has trade distortion effect it will harm the countrys import competing industries where subsidies are not being given. as the price of the subsidies receiving countrys(america) price will be much below the price of mexican farmers there produce will not be sold in there home country as well as in the world market which will put presure on the respective import competing firms. the best solution to this problem is prohibitive tariff by mexcan countrys government. this will be effective as it will raise the americans corn price in mexico much more than there actual price.
viii) after taking into consideration both possitive and negative effects of firm subsidies we can conclude that firm subsidies are good if the producing firm has more possitive externality than negative effect of subsidies.
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