Briefly discuss the effects of export subsidies given a competitive industry.
What will be an ideal response?
POSSIBLE RESPONSE: An export subsidy expands exports and production of the subsidized product. If the export subsidy is large enough it could even result in a product that a country would otherwise import becoming an export. If the exporting country is large enough to affect world prices, then the export subsidy lowers the price that the importing country pays for these exports. The importing country overall is better off, but the import-competing industry is harmed. For the export subsidy to work as intended, the government subsidizes only exports and not domestic purchases of the product. Additionally, something must prevent local buyers from importing the product at the lower foreign price. The export subsidy benefits the specific exporting industry but reduces the net national well-being of the exporting country as a whole.
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Indicate whether the statement is true or false
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a. True b. False Indicate whether the statement is true or false
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