a. The exporters of this country receive which price after subsidy? Explain b. W

Question

a. The exporters of this country receive which price after subsidy? Explain

b. What is the amount of export after subsidy?

c. What is the effect on consumers in the home country?

d. What is the effect on producers in the home country?

e. What is the effect on foreign consumers?

f. What is the dead weight loss in the home country?

g. What is the dead weight loss in the foreign country?

h. What is the dead weight loss in the world?

(a) Home Market (b) World Market Home price World price Home export supply, X b+ d X-s Foreign import demand, M D2 D1 S1 S2 Quantity Exports

Explanation / Answer

a) The price that the farmers will receive now after subsidy is P*. Because of increase in supply in world market price would drop down from Pw to P*.

b) The amount of export after subsidy would be equal to the difference between amount of export supplied before subsidy and after subsidy. That is X2 - X1.

c) With increase in export the supply would get reduced in home market after subsidy.

d) Home producers will supply more in foreign market than before after subsidy.

e) Foreign consumers will have greater supply than before subsidy.

f) Dead weight loss in home country is represented by part e

g) Dead weight loss in foreign country is represented by part f.

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