i. What is the free trade equilibrium price, output and exports? How does the Home export subsidy affect domestic price, the world price and Home exports (a numerical answer is expected)? ii. Calculate the effect of the subsidy on Home consumer surplus, producer surplus and government revenue.

i. What is the free trade equilibrium price, output and exports? How does the Home export subsidy affect domestic price, the world price and Home exports (a numerical answer is expected)? ii. Calculate the effect of the subsidy on Home consumer surplus, producer surplus and government revenue.

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 large Home country which is a natural exporter of wheat. To support domestic
wheat farmers, Home introduces a wheat export subsidy of $s per unit of exports, as shown
in the figure below.
Price
80
288
70
60
50
20 30 40
S
Price
80 90 100 Quantity
X₁ X₂
Ex
Ex-s
Im
Exports
i.
What is the free trade equilibrium price, output and exports? How does the
Home export subsidy affect domestic price, the world price and Home exports (a numerical
answer is expected)?
ii.
Calculate the effect of the subsidy on Home consumer surplus, producer surplus
and government revenue.

Calculate the effect of Home subsidy on Foreign country welfare. How does this
subsidy affect global welfare?
iv.
Explain who would win and who would lose from this subsidy around the world?

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