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Unformatted text preview: Export Subsidies An export subsidy raises the domestic price above the world price by the amount of the subsidy because domestic firms would be unwilling to sell at home for less than they would receive if the product was exported. As a result, consumers lose areas A and B. Producer surplus rises by areas A+B+C+D+ E. The cost of the subsidy to the government equals areas B+C+D+E+F . Overall, th ere is a net national loss equal to areas B+F. Countervailing Duties GATT's rules hold that export subsidies on manufactured goods are illegal for developed countries and an importing country can retaliate by imposing countervailing import duties. The export subsidy increases the supply of imports to S 2imports. The subsidy lowers the price in the importing country. importers exports world with export subsidy gain X+Y lose X+Y+Z lose Z with countervailing duty lose Y gain Y+Z gain Z both together gain X lose X A countervailing duty big enough to offset the export subsidy shifts the supply curve back to...
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- Fall '09
- Personal Finance