CA Foundation · Business Economics · International Trade
Indian exporters of a product receive an export subsidy from the government. Which of the following is the most likely result in the international market?
With an export subsidy, Indian exporters can sell abroad at lower prices and become more competitive. The subsidy cuts their net cost per unit, so they can price below rivals while keeping profit. It does not force price rises, ban imports or reduce foreign demand.
- AExporters can sell abroad at lower prices, increasing their competitivenessCorrect
- BExporters must raise foreign prices to cover the subsidy
- CImports of the product into India are prohibited
- DForeign demand for the product falls automatically
Explanation
An export subsidy lowers the exporter's net cost per unit, so the firm can charge a lower price in foreign markets and gain competitiveness. Option B is wrong because a subsidy reduces rather than increases costs. Option C describes an import ban, which is unrelated.
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