Question

Suppose Country A subsidizes exports of sugar by paying its exporters $s per ton of sugar exported. Does an improvement in the production technology, which enable an increase in the amount of output for any given price, increase the welfare of this country? Explain your reasoning.

Answer 1

Yes of course!

The country's welfare would increase as an improvement in production technology would allow an increase in the amount of sugar output that helps recover the debt or deficit from Nation.

As the amount of output increases, so does the real GDP increases and country exports also increases. As country exports increases, the current account balance will improve, and this helps to reduce the country's balance of payment deficit.

So, country's welfare increases.

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