Suppose Home is a large exporter of wheat. Initially, the world price is $70 per ton. Now suppose the Home government decides to support its domestic producer with an export subsidy of $10 per ton. As a result, the new domestic price increases to $75 per unit and the world price declines to $65 per unit. Use the accompanying figure to answer the following questions. a. Unlike a small exporter, domestic prices for a large exporter will not increase the full amount of the subsidy. This is because export subsidies by large exporters 100 95 90 decrease the world price due to 85 80 75 sloping international demand for the product. 70 65 A 60 8 55 50 45 40 35 30 25 20 15 10 D 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95100 Quantity b. What is the quantity exported under free trade? Home Price ($)

Suppose Home is a large exporter of wheat. Initially, the world price is $70 per ton. Now suppose the Home government decides to support its domestic producer with an export subsidy of $10 per ton. As a result, the new domestic price increases to $75 per unit and the world price declines to $65 per unit. Use the accompanying figure to answer the following questions. a. Unlike a small exporter, domestic prices for a large exporter will not increase the full amount of the subsidy. This is because export subsidies by large exporters 100 95 90 decrease the world price due to 85 80 75 sloping international demand for the product. 70 65 A 60 8 55 50 45 40 35 30 25 20 15 10 D 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95100 Quantity b. What is the quantity exported under free trade? Home Price ($)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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