5 marks) Country A is a small-country exporter of good X. (a) Assume that countr

Question

5 marks) Country A is a small-country exporter of good X. (a) Assume that country A's government subsidizes exports of good X by arn amount s per unit exported. No other exporting-country governments subsidize their firms' exports. Illustrate the subsidy's effects on country A's X market. Briefly describe the subsidy's effects (7 marks) (b) Continue to assume that country A's government subsidizes exports of good X by an amount s per unit exported. But now all other exporting-country governments subsidize their firms' exports as well, and by the same Illustrate the subsidy's effect on country A's X market. Briefly describe the subsidy's effects. amount. (7 marks) Explain how will each of the following domestic interest groups in country A be affected when other exporting countries begin to subsidize their X exports? (c) (i) X producers (ii) X consumers (ii) Tax payers (6 marks) ieF offert an infant

Explanation / Answer

a) When the country subsidized the good X it would start selling the good at lower price then the already set up world price of X. when no other country subsidized X but this country does it will make the demand of good X being exported froom this country rise. Hence the xport of X from the country will rise. However with more Good Xbeing exported (beacuse of rise in international demand) there could occcur shortage of supply of good X in dommestic market of X.

b) Now when all other country also subsidized good X export there would be no effect on the demand of export of X for country X. This will make the burden stiff as the subsidy would be collected from domestic tax payer and no pay off would take place. The market of X in domestic setting of country A suffer because of increase in burden of subsidy being paid by consumers in from of taxes.

c) X producers serving domestic market would turn blind eye to the domestic need of good X because of susbidy however it will not help them to export as the demand for export will no rise as well.

X consuers will suffer of country A with shortage of X.

Tax payers willl suffer as they would have to take the burden of the subsidy.

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