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.

Answer 1

It keeps the price of domestic goods relatively low.

A subsidy is a government payment to producers or consumers that lowers production costs or consumer prices, making domestic goods cheaper (relative to the unsubsidized price or to foreign goods).