Suppose that the world price of sugar is $100 per ton.If a
Small country gives its sugar exporters a subsidy of $50 per
Ton, then its domestic price of sugar will:
A)fall by $50 per ton.
B)rise by $50 per ton.
C)remain unchanged at $100 per ton.
D)first fall to $50 per ton, then rise to $100 per ton.

Question

Quizplus · Accepted Answer

When a small country gives its sugar exporters a subsidy, it effectively lowers their costs of production, making it easier for them to sell sugar domestically at a lower price. As a result, the domestic price of sugar will rise by less than the subsidy (in this case, by $50 per ton). Thus, the new domestic price of sugar will be $150 per ton ($100 world price + $50 subsidy), which is $50 higher than the original world price.

Suppose That the World Price of Sugar Is $100 Per