Countries A and B have different opportunity costs and comparative advantages.     Subsidies are payments by a country's government to domestic producers to encourage the export of a product. Subsidized products are usually products for which the country does not have a comparative advantage in production; otherwise, there would be no economic need for a subsidy.

    A large enough subsidy would make it possible for auto makers in Country A to offer terms of trade to Country B that would induce them to import rather than manufacture their own Cars. A subsidy cannot reduce the cost of auto production for Country A, it can only compensate auto makers for exporting Cars at below cost. In Country B, the opportunity cost of a Car is 1/2 a Food unit; therefore, Country A would have to subsidize its auto makers enough so that they can sell Cars to Country B for no more than 1/2 a Food unit each. Thus, the minimum subsidy would be 1.5 Food units for each Car exported, since it costs 2 units of Food to produce a Car in Country A.

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