There is a country which produces cars. It costs $11,000 for the domestic producers to produce one car, but they are not competitive on the world market where these cars are sold at $10,000. There is free trade between this country and the rest of the world right now. The government is thinking about applying export subsidies to promote car export. As a government advisor, try to give a hint whether it is good idea not? Who wins and who loses by applying the subsidies? How much subsidy would allow domestic producers to sell on the world market? Provide the arguments on which your advice is based!
There is a country which produces cars. It costs $11,000 for the domestic producers to produce one car, but they are not competitive on the world market where these cars are sold at $10,000. There is free trade between this country and the rest of the world right now. The government is thinking about applying export subsidies to promote car export. As a government advisor, try to give a hint whether it is good idea not? Who wins and who loses by applying the subsidies? How much subsidy would allow domestic producers to sell on the world market? Provide the arguments on which your advice is based!
Chapter28: International Trade
Section: Chapter Questions
Problem 15P
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