Compare the effects on the importing country of an export subsidy with an export tariff imposed by a large country.
A) The importing country will gain from both an export subsidy and an export tariff imposed by a large country.
B) The importing country will lose from both an export subsidy and an export tariff imposed by a large country.
C) The importing country will gain from an export tariff and lose from an export subsidy imposed by a large country.
D) The importing country will gain from an export subsidy and lose from an export tariff imposed by a large country.

Question

Quizplus · Accepted Answer

In the case of an export subsidy, the exporting country is effectively lowering the price of its exported goods. This could lead to an increase in demand for those goods in the importing country, resulting in lower prices for consumers and potential benefits for domestic producers who need those goods as inputs. However, it could also harm domestic producers who compete with the subsidized imports, as well as the overall domestic industry if it is displaced by the cheaper foreign imports.

On the other hand, an export tariff imposed by a large country would increase the price of the exported goods, potentially reducing demand and raising prices for consumers in the importing country. This could harm the domestic industry if it relies on those goods as inputs, but it could also benefit domestic producers who compete with the imported goods.

Therefore, the importing country would gain from an export subsidy (lower prices, potential benefits for certain domestic producers), but lose from an export tariff (higher prices, potential harm to certain domestic producers).

Compare the Effects on the Importing Country of an Export