in addition to the positive welfare effect that free in addition to the positive
ID: 1111823 • Letter: I
Question
in addition to the positive welfare effect that free in addition to the positive welfare effect that free in addition to the positive welfare effect that free y that exports steel. Suppose the following graph depcts the domestic demand and supply for steed in this country. One of the two price lines represents the world price of steel. Use the following graph to help you answer the questions below. You will not be graded on any changes made to this graph. Supply Demand 100 90 Triangle P2 Polygon o 60 50 40 P1Explanation / Answer
It has been stated that this country exports steel. This implies that at world price, domestic supply exceeds domestic demand.
Line P2 denotes price at which domestic supply exceeds domestic demand.
So,
Because this country exports steel, the world price is represented by Line P2.
Now, government subsidies the production of steel by $10 per ton.
With this export subsidy, the price paid by the domestic consumers is $80 per ton, and the price received by the domestic producers is $80 per ton.
The quantity of steel consumed by domestic consumers decreases to 200 tons, the quantity of steel produced by increases to 700 tons, and the quantity of steel exported increases to 500 tons.
After export subsidy, domestic producers sell 200 tons to domestic consumers.
Thus, the given statement is False.
Consumer surplus after subsidy = 1/2 * (100 - 80) * 200 = $2,000
Producer surplus after subsidy = 1/2 * (80 - 10) * 700 = $24,500
Government expenditure = 500 * 10 = $5,000
Total surplus = CS + PS - GE = 2,000 + 24,500 - 5,000 = 21,500
Under the export subsidy, consumer surplus is $2,000 and producer surplus is $24,500. Government revenue decreases by $5,000.
As a result, total surplus decreases to $21,500.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.