An export subsidy should have the opposite effect of
A)a government budget deficit.
B)capital flight.
C)an increase in private saving.
D)a tariff.

Question

Quizplus · Accepted Answer

An export subsidy and a tariff both affect international trade by distorting the price signals and giving an advantage to domestic producers. However, they have opposite effects. An export subsidy lowers the domestic price of exports, which encourages more production and selling of those goods abroad. On the other hand, a tariff raises the price of imports, which discourages consumption and imports, and may encourage domestic production. Therefore, a tariff and an export subsidy should have opposite effects.

An Export Subsidy Should Have the Opposite Effect of