To the extent that subsidies granted to exporting firms reduce the foreign price of their goods, the subsidizing country's terms of trade worsen.

Question

Quizplus · Accepted Answer

When a country subsidizes its firms' exports, the foreign price of those goods decreases, making imports more expensive relative to exports. This leads to a decline in the terms of trade for the subsidizing country.

To the Extent That Subsidies Granted to Exporting Firms Reduce