1. Suppose Home is a small exporter of wheat. At the world price of $100 per ton, Home growers export 20 tons. Now suppose the Home government decides to support its domestic producer with an export subsidy of $40 per ton. Use the following figure to answer these questions. Home Price 140 100 D S 10 20 40 50 Quantity a. What is the quantity exported under free trade and with the export subsidy? b. Calculate the effect of the export subsidy on consumer surplus, producer surplus, and government revenue. c. Suppose that instead of an export subsidy of $40 per ton, the Home government applies an export subsidy of $60 per ton. Assume the domestic price after the $60 per ton export subsidy is $140 and at a price of $80 demand would be 25 and supply would be 35. Calculate the effect of the export subsidy on consumer surplus, producer surplus, and government revenue.
1. Suppose Home is a small exporter of wheat. At the world price of $100 per ton, Home growers export 20 tons. Now suppose the Home government decides to support its domestic producer with an export subsidy of $40 per ton. Use the following figure to answer these questions. Home Price 140 100 D S 10 20 40 50 Quantity a. What is the quantity exported under free trade and with the export subsidy? b. Calculate the effect of the export subsidy on consumer surplus, producer surplus, and government revenue. c. Suppose that instead of an export subsidy of $40 per ton, the Home government applies an export subsidy of $60 per ton. Assume the domestic price after the $60 per ton export subsidy is $140 and at a price of $80 demand would be 25 and supply would be 35. Calculate the effect of the export subsidy on consumer surplus, producer surplus, and government revenue.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
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VIEWStep 2: a. Quantity exported under free trade and under subsidy.
VIEWStep 3: b. Change in consumer surplus, producer surplus and government revenue due to the subsidy of $40.
VIEWStep 4: c. Change in consumer surplus, producer surplus and government revenue due to the subsidy of $60.
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