Suppose Australia has only one firm that makes aircraft. Without assistance from the government, that firm has lost most of its business to imports from the United States and Europe. Which of the following policies would be most costly for the Australian nation as a whole, and which would be least costly? Explain.
Paying the lone Australian firm a production subsidy per plane, without protecting it against imports.
Imposing a tariff equal to the production subsidy in the above option a.
Imposing an import quota that cuts imports just as much as the option b.