Which of the following is a positive incentive for domestic producers?

• A. A tax imposed on imported goods
• B. A statement that domestic production should be increased
• C. A law requiring firms to reduce pollution
• D. A government subsidy for local manufacturing

Answer: (D)

Verified step by step guidance

1. Step 1: Understand what a positive incentive means in microeconomics. A positive incentive is something that encourages or motivates producers to increase production or improve their behavior by offering a benefit or reward.
2. Step 2: Analyze each option to determine if it provides a benefit or reward to domestic producers. For example, a tax on imported goods is a cost imposed on foreign competitors, which indirectly benefits domestic producers but is not a direct positive incentive.
3. Step 3: Consider the option 'A statement that domestic production should be increased.' This is merely a recommendation or encouragement, not a tangible benefit or reward, so it is not a positive incentive.
4. Step 4: Evaluate 'A law requiring firms to reduce pollution.' This is a regulation that imposes a cost or restriction on producers, which acts as a negative incentive rather than a positive one.
5. Step 5: Identify 'A government subsidy for local manufacturing' as a direct financial benefit given to domestic producers, which lowers their costs or increases their profits, thus serving as a positive incentive.