An export subsidy imposed by a large country can be more damaging to national welfare than an export subsidy imposed by a small country because:
A)the production effect is necessarily larger for the large country.
B)the consumption effect is necessarily larger for the large country.
C)the terms of trade worsen for the large country but not for the small country.
D)the net national gains of the large country are overshadowed by the net welfare loss of the world.

Question

Quizplus · Accepted Answer

The terms of trade worsen for a large country when it imposes an export subsidy because it has a significant impact on world prices due to its size. A small country, on the other hand, has less impact on world prices, so its terms of trade are less likely to worsen.

An Export Subsidy Imposed by a Large Country Can Be