In the exporting country, an export subsidy will
A) help consumers and raise the overall economic welfare of the exporting country.
B) hurt consumers but raise the overall economic welfare of the exporting country.
C) hurt consumers and lower the overall economic welfare of the exporting country.
D) help consumers but lower economic welfare of the exporting country.
E) help consumers and have no effect on the economic welfare of the exporting country.

Question

Quizplus · Accepted Answer

An export subsidy will increase the supply of goods in the exporting country, leading to lower prices for consumers in the exporting country. However, since the subsidy encourages more exports, it will also lead to a reduction in the supply of goods available for domestic consumption. As a result, domestic consumers will face higher prices, which will hurt their welfare. Furthermore, the subsidy will lead to distortions in the market, as the increased supply of goods will reduce the market price below the cost of production. This will lead to a misallocation of resources, which will lower the overall economic welfare of the exporting country.

In the Exporting Country, an Export Subsidy Will