From the point of view of a large exporting country an export subsidy Group of answer choices causes the terms of trade to deteriorate. causes the terms of trade to improve. has no distributional consequences. entails no deadweight welfare losses.
Added by Cristian H.
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This subsidy can help lower the cost of production for exporters, making their goods more competitive in the international market. Show more…
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In principle, the benefits of international trade to a country exceed the costs, no matter whether the country is importing or exporting. In practice, it is not always possible to compensate the losers in a country, for example, workers who lose their jobs due to foreign imports. In your opinion, does that mean that trade should be inhibited to prevent the losses?
Suppose that Country $X$ subsidizes its exports and Country $Y$ imposes a "countervailing" tariff that offsets the subsidy's effect, so that in the end, relative prices in Country $Y$ are unchanged. What happens to the terms of trade? What about welfare in the two countries? Suppose, on the other hand, that Country Y retaliates with an export subsidy of its own. Contrast the result.
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