Subsidy / Export Subsidy (HL Extension)
Types of Trade Protection
AO4·HL
Syllabus requirement
HL students must calculate the financial impact of a subsidy using the diagram—focusing on changes in stakeholder surplus and government spending.
Assessment objectives
AO4 Use of Appropriate Skills
Higher LevelThis topic is assessed at HL.
Summary
This topic explains how government subsidies lower domestic producers' costs to help them compete in international markets, and how export subsidies target firms selling abroad. It describes the effects in a small open economy where the world price is unchanged: domestic supply rises, imports fall, producer revenue increases, consumers are unaffected, the government bears the cost, foreign producers lose revenue and there is a welfare loss from inefficient higher-cost domestic production.
