Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. 2500 2000 1500 S = World price Domestic price with subsidy 1000 Price ($/ton)

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30) Suppose a small island nation imports sugar for its population at the world price of
$1,500 per ton. The domestic market for sugar is shown below.
2500
2000
1500
S = World price
Domestic price
with subsidy
1000
500
4
8.
12
16
20
Quantity (tons/day)
If the government provides a subsidy of $500 per ton, then relative to before the
subsidy, total economic surplus will
A) increase; $1,000
C) decrease; $6,500
by
B) decrease; $1,000
D) increase; $6,500
per day.
Price ($/ton)
Transcribed Image Text:30) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. 2500 2000 1500 S = World price Domestic price with subsidy 1000 500 4 8. 12 16 20 Quantity (tons/day) If the government provides a subsidy of $500 per ton, then relative to before the subsidy, total economic surplus will A) increase; $1,000 C) decrease; $6,500 by B) decrease; $1,000 D) increase; $6,500 per day. Price ($/ton)
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