For a small nation employing a production subsidy, if the consumers face the same price as before, the additional production generated by the subsidy will be purchased by:
A) new domestic consumers.
B) the export sector.
C) the financial sector.
D) the government.

Question

Quizplus · Accepted Answer

If the consumers face the same price as before, it means that the subsidy is not being passed on to them in the form of lower prices. Therefore, the domestic demand will remain the same. The additional production generated by the subsidy will have to be sold to someone else, and the most likely candidate is the export sector. The subsidy will reduce the cost of production, making it more competitive in the international market, and thus increasing exports.

For a Small Nation Employing a Production Subsidy, If the Consumers