A Subsidy can reduce consumption     The more Cars Country A exports to Country B at below cost, the worse off it is. If Country A exports 20 Cars, it then faces the PPF EX-20, where the maximum amount of Food it can produce for domestic consumption is 70 units (if it produces no Cars for domestic use). If it didn't export Cars at all, Country A could produce 70 units of Food and 15 Cars for domestic consumption; so this subsidy, while helping auto makers in Country A, is making the country, as a whole, poorer.

    If Country A is determined, it can starve itself to death and produce more than its maximum possible 50 Cars for export! Country A can export 50 Cars, receive 25 Food units in payment then use those payments to produce another 12.5 Cars, receive 6.25 Food units, and so on, until it has less that 2 units of Food and no Cars. Admittedly, this example is a rather absurd extreme, but it illustrates that subsidizing producers to export at below cost is poor policy unless some other compelling reason exists to do so.

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