Question

What is the impact of export subsidies granted by a country's government? A) They make domestic...

What is the impact of export subsidies granted by a country's government?

A) They make domestic producers more competitive internationally

B) They increase the costs of production for domestic producers

C) They decrease the price of goods domestically

D) They bring an imported product's value closer to the normal value

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Answer #1

Answer. (A) They make domestic producers more competitive internationally

Explanation: Suppose domestic firms are producing steel sheets for the global market, but due to infant industries, initially their costs are very high and thus prices are also very high. In that case, their steel will not be sold as much in the global market and cheap steel from some other nation will sell more. So when governments give export subsidy, they contribute to the production costs of the firms for the products that they produce for exporting. This benefits the firms by reducing the prices of their products in the global market, and it benefits the governments since they get more foreign exchange into their country.

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