A country is a leading producer of lumber. They want to increase their export of lumber. They decide to impose a subsidy on the export of lumber. What are the result of this decision on exports, domestic consumers, and producers?(1 point)

Question

A country is a leading producer of lumber. They want to increase their export of lumber. They decide to impose a subsidy on the export of lumber. What are the result of this decision on exports, domestic consumers, and producers?(1 point)
Responses

The subsidy will decrease exports of lumber, lower prices for domestic consumers, and raise the price for producers.
The subsidy will decrease exports of lumber, lower prices for domestic consumers, and raise the price for producers.

The subsidy will increase exports of lumber and raise domestic prices for consumer and producers.
The subsidy will increase exports of lumber and raise domestic prices for consumer and producers.

The subsidy will decrease exports of lumber and raise the prices for domestic consumers and producers.
The subsidy will decrease exports of lumber and raise the prices for domestic consumers and producers.

The subsidy will increase exports of lumber and lower prices for domestic consumers and producers.

GPT-4o mini · Answer

The most accurate response to the scenario described is:

The subsidy will increase exports of lumber and lower prices for domestic consumers and producers.

Here's why:

Increase in Exports: The subsidy provided for lumber exports makes it cheaper for foreign buyers, which is likely to increase the quantity of lumber being exported. Producers are incentivized to send more of their product abroad since they receive additional financial support from the government.
Impact on Domestic Prices: With the subsidy in place, the effective price that domestic producers receive for their lumber can be higher, but since they are encouraged to export more, the overall supply available in the domestic market may increase as well. This increase in supply can lead to lower prices for domestic consumers.
Impact on Domestic Producers: While producers might initially benefit from the subsidy (potentially raising their profit margins on exports), they may also face downward pressure on prices in the domestic market as more lumber becomes available for export.

In summary, the main outcomes of the subsidy are an increase in exports and a reduction in prices for domestic consumers, while the impact on domestic producers can be mixed depending on how much of the market they supply domestically versus internationally.