5. Agricultural export subsidies in a small nationThe following graph shows the market for wheat in Canada, where Do is the demand curve, Sc is the supply curve, and Pw is the free trade price ofwheat. Assume that Canada is a relatively small producer of wheat, so changes in its output do not affect the world price of wheat. Also assume thatCanada is currently open to free trade, and domestic consumers are able to purchase wheat at the world price with negligible transportation costs.Suppose a subsidy of $80 per ton is granted to exporters in Canada, allowing them to sell their products abroad at prices below their costs. Assumethat trade restrictions are also put in place in order to prevent domestic consumers from buying wheat abroad at the world price.Use the grey line (star symbols) to indicate the world price of wheat plus the subsidy on the following graph. Then use the black point (plus symbol) toindicate the price of wheat in Canada and the quantity demanded at that price. Finally, use the tan point (dash symbol) to indicate the price of wheatreceived by Canadian producers with the subsidy and the quantity of wheat they will supply at that price.(?)PRICE (Dollars perton)400360320280240200160120804000DoPw200 400 600 800 1000 1200 1400 1600 1800 2000QUANTITY (Tons)50+ Subsidy+Q in CanadaPw+Qin CanadaLoss in CSGain in PS Export subsidies result in a welfare loss to the home country due to the protective and consumption effects. In order to determine the magnitude ofthese effects, you must compare the change in consumer and producers surplus against the cost of the subsidy.On the previous graph, use the green quadrilateral (triangle symbols) to indicate the loss in consumer surplus due to the export subsidy. Then use thepurple quadrilateral (diamond symbols) to indicate the gain in producer surplus as a result of the export subsidy.The taxpayer cost of the export subsidy equals $Using all of the previous information, compute the value of deadweight loss in Canada as a result of the export subsidy.Deadweight Loss = Loss in Consumer Surplus + Cost of Subsidy - Gain in Producer Surplus

The government often pays the additional cost associated with exporting the goods. This is termed an…

Export subsidies result in a welfare loss to the home country due to the protective and consumption effects. In order to determine the magnitude of these effects, you must compare the change in consumer and producers surplus against the cost of the subsidy. On the previous graph, use the green quadrilateral (triangle symbols) to indicate the loss in consumer surplus due to the export subsidy. Then use the purple quadrilateral (diamond symbols) to indicate the gain in producer surplus as a result of the export subsidy. The taxpayer cost of the export subsidy equals S Using all of the previous information, compute the value of deadweight loss in Canada as a result of the export subsidy. Deadweight Loss = Loss in Consumer Surplus + Cost of Subsidy - Gain in Producer Surplus

Export subsidies result in a welfare loss to the home country due to the protective and consumption effects. In order to determine the magnitude of these effects, you must compare the change in consumer and producers surplus against the cost of the subsidy. On the previous graph, use the green quadrilateral (triangle symbols) to indicate the loss in consumer surplus due to the export subsidy. Then use the purple quadrilateral (diamond symbols) to indicate the gain in producer surplus as a result of the export subsidy. The taxpayer cost of the export subsidy equals S Using all of the previous information, compute the value of deadweight loss in Canada as a result of the export subsidy. Deadweight Loss = Loss in Consumer Surplus + Cost of Subsidy - Gain in Producer Surplus

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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