The figure shows a country’s domestic supply and demand curves for a good, as well as the world price, Pw, for the good that it faces, as a small country, on the world market. Initially, the country is exporting X1 units of that good at that price. Suppose that producers in this industry lobby policy makers to provide them with some sort of assistance to help them export even more. Policy makers are considering an export subsidy.What area represents the loss to the consumers from this subsidy?Group of answer choicesaa+ba+b+czero (consumers do not lose) **Figure 2: Illustration of Supply and Demand Dynamics**This diagram represents the relationship between price and quantity in the context of supply and demand. - The vertical axis indicates the price, while the horizontal axis represents quantity.- Two curves are depicted: the demand curve (D) in pink, and the supply curve (S¹) in blue.- The horizontal lines labeled \( P_W \) and \( P_W + s \) are reference lines indicating different price levels. ### Key Points:1. **Price Levels:** - \( P_W \) represents the world price level. - \( P_W + s \) indicates a higher price, potentially due to a subsidy or tariff.2. **Quantities:** - The quantities on the horizontal axis are differentiated as follows: - \( Q^2_d, Q^1_d \) denote quantities demanded at respective price levels. - \( Q^1_s, Q^2_s \) signify quantities supplied.3. **Areas of Interest:** - The regions between the curves and the horizontal lines are labeled as \( a, b, c, \) and \( d \), representing changes or shifts in consumer and producer surplus under different conditions. 4. **Intervals:** - \( X^1, X^2, \) and \( X^3 \) are intervals indicating changes in quantities produced or consumed due to shifts in demand or supply in response to price changes.This graph is useful for visualizing how changes in international markets, such as tariffs or subsidies, can affect domestic supply and demand.

Consumer surplus is the area above the market price and below the demand curve.Subsidy raises Pw to Pw+s. At this new price, consumers consume Q2d units. Earlier they were consuming Q1d units. With export subsidy consumer surplus decreases by a+b Answer : a+b

Answered: The figure shows a country’s domestic…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The figure shows a country’s domestic supply and demand curves for a good, as well as the world price, P^w, for the good that it faces, as a small country, on the world market. Initially, the country is exporting X¹ units of that good at that price. Suppose that producers in this industry lobby policy makers to provide them with some sort of assistance to help them export even more. Policy makers are considering an export subsidy.

What area represents the loss to the consumers from this subsidy?

Group of answer choices

a+b

a+b+c

zero (consumers do not lose)

**Figure 2: Illustration of Supply and Demand Dynamics**

This diagram represents the relationship between price and quantity in the context of supply and demand.

- The vertical axis indicates the price, while the horizontal axis represents quantity.
- Two curves are depicted: the demand curve (D) in pink, and the supply curve (S¹) in blue.
- The horizontal lines labeled \( P_W \) and \( P_W + s \) are reference lines indicating different price levels.

### Key Points:

1. **Price Levels:**
- \( P_W \) represents the world price level.
- \( P_W + s \) indicates a higher price, potentially due to a subsidy or tariff.

2. **Quantities:**
- The quantities on the horizontal axis are differentiated as follows:
- \( Q^2_d, Q^1_d \) denote quantities demanded at respective price levels.
- \( Q^1_s, Q^2_s \) signify quantities supplied.

3. **Areas of Interest:**
- The regions between the curves and the horizontal lines are labeled as \( a, b, c, \) and \( d \), representing changes or shifts in consumer and producer surplus under different conditions.

4. **Intervals:**
- \( X^1, X^2, \) and \( X^3 \) are intervals indicating changes in quantities produced or consumed due to shifts in demand or supply in response to price changes.

This graph is useful for visualizing how changes in international markets, such as tariffs or subsidies, can affect domestic supply and demand.

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