Free trade with the export subsidy

Suppose Home is a small exporter of wheat. At the world price of $100 per ton, Home growers export 20 tons. Now suppose the Home government decides to support its domestic producer with an export subsidy of $40 per ton. Use the following figure to answer these questions.

 

 

a. What is the quantity exported under free trade and with the export subsidy?

 

Quantity exported Under free trade = 40- 20 = 20 tons

Quantity exported after export subsidy is (50-10 = 40 tons).

 

b. Calculate the effect of the export subsidy on consumer surplus, producer surplus, and government revenue.

 

Consumer Surplus decreased by the area = a+ b

= Area of a +Area of b

= -40*10-1/2*10*40

= -400-200

= -600

 

Producer Surplus increased by the area =a+ b+ c

= 40*40+1/2*10*40

= 1600+200

= 1800

 

Government Revenue decreased by the area =b+ c +d

= -40*40

= -1600

 

c. Calculate the overall net effect of the export subsidy on Home welfare.

 

Overall Net effect would be =

= -600+1800-1600

= -400

 

So, total deadweight loss is the area b+ d.

 

 

 

8. Refer to Problem 8 above. Suppose that Home is a large country. Continue to assume that the free-trade world price is $100 per ton and that the Home government provides the domestic producers with an export subsidy in the amount of $40 per ton. Because of the export subsidy, the local price increases to $120, while the foreign market price declines to $80 per ton. Use the following figure to answer these questions.

a. Relative to the small-country case, why does the new domestic price increase by less than the amount of the subsidy?

 

It is decreased by less in a Large country case, because part of the subsidy is offset by the Decreasing world prices.

 

b. Calculate the effect of the export subsidy on consumer surplus, producer surplus, and government revenue.

 

Consumer Surplus decreased by the area = a+ b

= Area of a +Area of b

= -20*15-1/2*5*20

= -300-50

= -350

 

Producer Surplus increased by the area = a+ b+ c

= 40*20+1/2*5*20

= 800+50

= 850

 

Government Revenue decreased by the area = b+ c +d +e

= -40*30

= -1200

 

 

c. Calculate the overall net effect of the export subsidy on Home welfare. Is the large country better or worse off compared with the small country with the export subsidy? Explain.

d.

Overall Net effect would be =

= -350+850-1200

= -700

 

The large country is worse off after export subsidy than then Small Country because of terms of trade loss.


Get Professional Assignment Help Cheaply

fast coursework help

Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?

Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.

Our essay writers are graduates with diplomas, bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.

Why Choose Our Academic Writing Service?

  • Plagiarism free papers
  • Timely delivery
  • Any deadline
  • Skilled, Experienced Native English Writers
  • Subject-relevant academic writer
  • Adherence to paper instructions
  • Ability to tackle bulk assignments
  • Reasonable prices
  • 24/7 Customer Support
  • Get superb grades consistently

How It Works

1.      Place an order

You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.

2.      Pay for the order

Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.

3.      Track the progress

You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.

4.      Download the paper

The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.

smile and order essaysmile and order essayPLACE THIS ORDER OR A SIMILAR ORDER WITH MR ESSAY WRITER TODAY AND GET AN AMAZING DISCOUNT

order custom essay paper

Leave a comment

Your email address will not be published. Required fields are marked *