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Passage: 'Although thousands of small business owners receive government subsidies each year, the small-business sector continues to shrink in many regions.' Which, if TRUE, BEST explains the paradox?
ASmall-business owners enjoy subsidies
BThe government has good intentions
CSubsidies are widely advertised
DThe subsidies are typically too small to overcome the structural disadvantages (cheaper credit and scale economics) enjoyed by large competitors; small businesses fail despite the subsidies
Answer & Solution
Correct answer: D. The subsidies are typically too small to overcome the structural disadvantages (cheaper credit and scale economics) enjoyed by large competitors; small businesses fail despite the subsidies
The mediating mechanism (structural disadvantage outweighs subsidy size) resolves the puzzle. Mere intention or publicity does not explain the empirical pattern.
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