T5\6.RP[[[[An export subsidy is a payment by the government to the producer to cover part of the cost of production that is exported. The U.S. and European Union governments subsidize farm products. These subsidies stimulate the production and export of farm products, but they make it harder for producers in other countries, notably in Africa and Central and South America, to compete in global markets. Export subsidies bring gains to domestic producers, but they result in overproduction in the domestic economy and underproduction in the rest of the world and so create a deadweight loss (see Chapter 6 , here ).

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Checkpoint 9.3 Practice Problems