Ask a New Question
Menu

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

1 answer

The correct response is:

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

Here's the reasoning:

  1. Exports: The subsidy on lumber exports provides financial support to exporters, making it more attractive for them to sell lumber abroad. This will likely lead to an increase in exports.

  2. Domestic Prices for Consumers: The subsidy can result in lower domestic prices for consumers because the increased supply of lumber (due to exports and subsidized production) may lead to a decrease in prices domestically.

  3. Domestic Prices for Producers: While the lower supply for domestic markets might raise prices for domestic producers, the subsidy incentivizes production and may lead to more competition in the market. Thus, producers might see a mixed effect, with domestic market prices potentially being influenced but overall benefiting from increased sales volumes in export markets due to the subsidy.

In summary, the subsidy is intended to boost exports, which may lower domestic consumer prices, while affecting producer prices based on the balance of supply and demand in both domestic and export markets.