Subsidies Lower Barriers for New Businesses

Steps:

• Identify supply-side policies that improve incentives for production and innovation.
• Evaluate how each option affects startup costs and risks for entrepreneurs.
• Focus on policies reducing financial hurdles to entry.
• Select the one directly aiding small firms and new ventures.

Why A is correct:

• Subsidies provide financial support to small firms, reducing startup costs and risks, which aligns with supply-side economics by encouraging entrepreneurship through lower barriers to market entry.

Why the others are wrong:

• B: Raising the minimum wage increases labor costs, discouraging hiring and new business formation.
• C: Stronger trade unions raise bargaining power for workers, potentially increasing wage demands and operational costs for startups.
• D: Higher profit taxes reduce after-tax returns, making it less attractive to start and invest in new businesses.

Final answer: A