Question 4 Suppose Home is a small exporter of wheat. At the world price of 100 US dollars per tonne, Home growers export 20 tons of wheat. Now suppose the Home government decides to support its domestic producers with an specific export subsidy of 40 US dollars per tonne. Use Figure 1 to answer the following questions: Figure 1: Supply and Demand for Wheat at Home Home price 140 100 X 20 40 10 50 Supply Demand Quantity (a) Explain why consumer and producer surplus can be used to gauge the change in welfare caused by the export subsidy on individuals and firms. (b) What is the quantity exported by Home under free trade and with the export subsidy? (c) Calculate the effect of the export subsidy on consumer surplus, producer surplus and government revenue; depict each of these in a graph. What is the overall net effect of the export subsidy on Home welfare?

Question 4 Suppose Home is a small exporter of wheat. At the world price of 100 US dollars per tonne, Home growers export 20 tons of wheat. Now suppose the Home government decides to support its domestic producers with an specific export subsidy of 40 US dollars per tonne. Use Figure 1 to answer the following questions: Figure 1: Supply and Demand for Wheat at Home Home price 140 100 X 20 40 10 50 Supply Demand Quantity (a) Explain why consumer and producer surplus can be used to gauge the change in welfare caused by the export subsidy on individuals and firms. (b) What is the quantity exported by Home under free trade and with the export subsidy? (c) Calculate the effect of the export subsidy on consumer surplus, producer surplus and government revenue; depict each of these in a graph. What is the overall net effect of the export subsidy on Home welfare?

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: Application: International Trade

Section: Chapter Questions

Problem 8PA

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