International Trade: Export Subsidies

In the arena of global competition, a way to tip the scales in favor of domestic industries is by providing them an export subsidy. This will help them gain market share internationally. In this video we will learn how to graph an export subsidy.

This video is made for 1st year college students or AP/IB Economics students. It focuses on foundational economic concepts.

[sajidnoor]

I must thank you for your outstanding explanation and for clarifying the difference between production subsidy and export subsidy at the very beginning.

[sajidnoor]

However, I do have a question and doubt that domestic consumer price will increase. Because the world price is Pw. If domestic producer sell at Pc (in your graph), then consumers will import from the world at Pw Price. So domestic producer will export all their production to the world market and domestic consumers will import the amount from the world where Pw intersects the demand curve. In an open economy, there is no restriction on Imports and exports. Many other countries will be willing to export the good at Pw price. For example, suppose the oil price in the world market is $100 per barrel. The US government will give a $5 subsidy on each unit of export. So the US oil producer will get $105 for every barrel they export in the world. $100 from the world and $5 from the government. If US domestic oil producer wants to sell at $105 in the domestic market, then foreign oil producers like Saudi Arabia will export to the US at $100. So domestic consumers will consume entirely Saudi oil at $100 and purchase none of the US producer oil. And US producer will export their entire production in the world since they can make $105 per barrel. Please explain if I am wrong and why I am wrong?

[yourmuse]

Such a precise explanation, needed help since the text in salvatore was kind of indirect here

[downthelane]

what textbook is this diagram from? is it ib approved ?

[xuanik]

Thank u!!! The explanation is exhaustive and comprehensible!!