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)
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 lower 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 raise domestic prices for consumer and producers.

Answer 1

The correct answer is:
"The subsidy will increase exports of lumber and raise domestic prices for consumers and producers."

Explanation: An export subsidy encourages producers to sell more abroad (exports rise). That reduces the supply available at home, pushing up the domestic price — producers receive a higher price (plus the subsidy) and consumers face higher domestic prices.