An important factor to consider when a nation considers subsidies for export promotion is whether:
A) the firms will follow through on their plans.
B) costs will rise or fall.
C) the subsidy and continued support will force foreign firms out of the market.
D) the government can afford to do it.

Question

Quizplus · Accepted Answer

The main purpose of subsidies for export promotion is to make domestic firms more competitive in foreign markets by lowering their costs, which ultimately leads to increased exports. However, if the subsidy is too large or if it continues over a long period of time, it may ultimately harm foreign firms in the same market, potentially leading to an unfair playing field. As such, policymakers should consider whether the subsidy and continued support will force foreign firms out of the market when weighing the benefits and drawbacks of this policy.

An Important Factor to Consider When a Nation Considers Subsidies