Suppose that Germany decides to become self sufficient in bananas and even to export them. In order to accomplish these goals, large tax incentives are granted to companies that will invest in banana production. Soon, the German industry is competitive and able to sell bananas at the lowest price anywhere. A comparative advantage for Germany in banana?

Question

Wendy Hogan

Business

7 March, 04:06

Suppose that Germany decides to become self sufficient in bananas and even to export them. In order to accomplish these goals, large tax incentives are granted to companies that will invest in banana production. Soon, the German industry is competitive and able to sell bananas at the lowest price anywhere. A comparative advantage for Germany in banana?

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Joanna Ward · Answer 1

There is no such thing as tax incentives do not reduce the high chance costs for German banana manufacturing.

All of these (tax revenue is transferred from many other purposes, increased opportunity costs are created, labor and capital are used up in a relatively inefficient effort and economic welfare falls)