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

Question

Quizplus · Accepted Answer

When the country gives a subsidy to its exporters, it lowers their production costs and allows them to sell sugar for cheaper than before. As a result, they can sell at a lower price while still making a profit. This increase in supply will cause the global price to decrease, but not as much as the subsidy itself. Therefore, the world price of sugar will fall by less than $50 per ton.

Suppose That the World Price of Sugar Is $100 Per