Export Subsidy in a Large Country | Welfare Loss & Terms of Trade Effects Explained
This lecture analyzes the economic effects of an export subsidy implemented by a large country. Learn how export subsidies impact domestic producers and consumers, affect the terms of trade TOT, create deadweight loss DWL, and ultimately reduce national welfare. while the importing country actually gains from the policy.
for quick review and full notes on Tariff and Export Subsidies: https://nishamalhotra.com/trade-polic...
📌 What You'll Learn:
• How export subsidies affect producer and consumer surplus in the exporting country
• The terms of trade effect when a large country subsidizes exports
• Why export subsidies create deadweight loss and reduce overall welfare
• How importing countries benefit from another nation's export subsidy
• The difference between small and large country subsidy effects
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0:00 Introduction — What Is an Export Subsidy?
0:30 Numerical Example — $10 World Price and $2 Subsidy
1:12 Export Subsidy vs Production Subsidy — Key Distinction
1:24 Effect on Export Supply and Domestic Market
1:38 World Market — How Export Subsidy Lowers World Prices
2:25 Price Notation Review — Pw, Pw* and Pd Explained
2:49 Effect on Domestic Prices — Why Pd Rises Above Pw*
3:43 Welfare Analysis — Change in Producer and Consumer Surplus
4:17 Cost of the Export Subsidy to the Government
4:46 Total Welfare Loss — Areas B + D + E + F + G
4:55 Terms of Trade Deterioration Explained
5:41 Efficiency Losses — Consumption and Production Distortion
6:09 Summary of Welfare Losses — Large Country Result
6:27 Conclusion — Export Subsidies Always Reduce Welfare
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Keywords: export subsidy welfare effects, large country trade policy, export subsidy deadweight loss, terms of trade subsidy, trade policy economics, export subsidy producer surplus, international trade subsidies, welfare loss from subsidies