Suppose the Government Grants a Subsidy to Its Export Firms

question 12

Multiple Choice

Suppose the government grants a subsidy to its export firms that permits them to charge lower prices on goods sold abroad.The export revenue of these firms would rise if the foreign demand is:

• A) Elastic in response to the price reduction
• B) Inelastic in response to the price reduction
• C) Unit elastic in response to the price reduction
• D) None of the above

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Definitions:

Liquidated Damages

A bona fide estimate of the monetary damages that would flow from the breach of a contract.

Consequential Damages

Indirect damages that do not flow directly from the act but occur as a consequence of the initial act, often involving loss of profit or other secondary losses.

Liquidated Damages

A pre-determined sum agreed upon by parties in a contract as compensation for breach of contract, where actual damages are difficult to ascertain.