Answered: Consider a small country that exports…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider a small country that exports steel. Suppose the following graph depicts the domestic demand and supply for steel in this country. One of the two price lines represents the world price of steel.

ecause this country exports steel, the world price is represented by .

Suppose that a “pro-trade” government decides to subsidize the export of steel by paying $10 for each ton sold abroad.

With this export subsidy, the price paid by domestic consumers is

per ton, and the price received by domestic producers is

per ton. The quantity of steel consumed by domestic consumers , the quantity of steel produced by domestic producers , and the quantity of steel exported .

True or False: With the export subsidy, domestic producers will sell steel to domestic consumers and sell the rest abroad.

True

False

Under the export subsidy, consumer surplus is

and producer surplus is

. Government revenue by (increases or Decreases)

. As a result, total surplus .(remians Unchanged, Increases or Decreases)

Demand
Supply
100
90
Triangle
80
P2
70
60
Polygon
50
40
30
20
10
0 100 200 300 400 500 600
700 800 900 1000
Quantity of Steel (Tons)
Price of Steel (Dollars per ton)

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