If a large nation imposes a production subsidy, the production subsidy:
A) has more impact on world prices than an export subsidy.
B) increases exports by more than the export subsidy.
C) has no measurable effect on prices or exports for a large country.
D) changes world prices by less and increases exports by less than an export subsidy.

Question

Quizplus · Accepted Answer

A production subsidy would increase domestic production and supply, leading to a decrease in domestic prices. This would make the country's goods more competitive in international markets, which would increase exports. However, the impact on world prices would be less than an export subsidy because the increased production would not necessarily lead to a significant increase in global supply. Therefore, a production subsidy changes world prices by less and increases exports by less than an export subsidy.

If a Large Nation Imposes a Production Subsidy, the Production