(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. Suppose Home is a small exporter of wheat. At the world price of 100 US dollars per tonne, Home growersexport 20 tons of wheat. Now suppose the Home government decides to support its domestic producers withan 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 HomeHome price14010010 204050SupplyDemandQuantity

a) Export subsidies are a sort of public policy that stimulates the export of a country's goods and…

Answered: Suppose Home is a small exporter of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(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.

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
10 20
40
50
Supply
Demand
Quantity

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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