An Export Subsidy Has the Opposite Effect on Terms of Trade

question 1

Essay

An export subsidy has the opposite effect on terms of trade to the effect of an import tariff. Domestically a tariff will raise the price of the import good, deteriorating the domestic terms of trade. A production subsidy for the export product will lower the local price of the export good, lowering the domestic terms of trade for the country. Hence the export subsidy and the import tariff have the same effect. This analysis seems to contradict the first sentence in this paragraph. Discuss this paradox.

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Definitions:

Ambilineal Descent

A form of descent in which individuals may inherit some family traits, affiliations, or belongings through either the maternal or paternal line, as selected by the individual, group, or society.

Bilateral Descent

A system of family lineage in which kinship and inheritance are traced through both parents' lines.

Double Descent

A system of kinship where individuals trace their ancestry through both their mother's and father's lines equally.

Lineage

A unilineal kin group descended from a common ancestor or founder who lived four to six generations ago and in which relationships among members can be exactly stated in genealogical terms.