Question 12, please explain answer. Suppose that Home is a smal given by P-40+ w

Question

Question 12, please explain answer. Suppose that Home is a smal given by P-40+ where os an40140 and the dmporiter of wheat. The domestic inverse supply function of Home producers is price is as in question 11. are in tdomestic inverse demand function of Home consumers is given by P-200-40P wer questions 11-18 accordingly. For questions 12-18, assume that the world 11) If Home exports 20 tons of wheat under fre trade, then the wor o 560 A) $120 B) $140 D) $160 E)S180 C) $150 12) If government aims to increase the wheat export by 10 tons, then the government must I. give an export subsidy of $10 per unit. II. give a production subsidy of $20 per unit. III give an export subsidy of $20 per unit A) Only I IV. give a production subsidy of S C) I and II E) III and IV D) II and III B) Only IV

Explanation / Answer

11. d is correct

export supply = home SUPPLY - home DEMAND

XS= P/4 -10-(50-P/4) = p/4-10-50+p/4=p/2-60

A/c qun. p/2-60= 20

so, p =$ 160

12. d) is correct answer

P/2-60= 30

so, p* = $ 180 but the world price is $160 hence $20 per unit subsidy must be given for export to increase by 10 ton. Similarly government can also give subsidy of $ 20 per unit in order to enhance production of the good.

thanks

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