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- To determine: The impact of export subsidy.Explain how an export subsidy is theoretically meant to work. Think of the application to “infant industryAnalyze with the help of a graph how an export subsidy affects the terms of trade of the country providing the subsidy. Is the export subsidy desirable from the perspective of overall social welfare of the country? Explain.
- Discuss the gains and losses from trade in terms of consumer and producer surplus.The figure below illustrates the impact of an export subsidy as imposed by a large country. No imports are permitted. Price Domestic price with subsidy World price World price with subsidy Di So Quantity The consumption effect of the export subsidy is shown by area(s) d. Ob. O (d +i+ j). O (b +f+ g).Refer to the figure at right showing the market for cheese. The increase in domestic producer surplus associated with the tariff shown will be S. (Round your response to the nearest dollar.) Price of Cheese ($) Market for Cheese Pw+t=26 P₁ = 20 D B 8 14 22 30 Quantity of Cheese (thousand units) S D M
- The figure below illustrates the impact of an export subsidy as imposed by a large country. No imports are permitted. Price D D₁ Da Domestic price with subsidy World price World price with subsidy Quantity What is the net impact on the producer surplus of the export subsidy provided by the domestic government? The producer surplus increases by area (a+b+c+d).. The producer surplus falls by area (a + b). The producer surplus falls by area (a + b +c+e+f+g+h). The producer surplus increases by area (a + b + c).Now, suppose that Home applies an import quota limiting the amount Foreign can sell to 2 units. The quota licenses are allocated to local producers. Calculate the consumer surplus and producer surplus with the quotaWhich of the choices describes how the effects of import tariffs and import quotas are different? The domestic cost of an import tariff is larger than the domestic cost of a comparable import quota. Import tariffs create deadweight loss, whereas import quotas do not create deadweight loss. Quotas do not affect the equilibrium price, whereas tariffs do not affect the equilibrium quantity. Some foreign producers receive some of the benefits generated by an import quota.
- The figure below illustrates the impact of an export subsidy as imposed by a large country. No imports are permitted. Price aib f D D₁ h So Si Sa Da O The producer surplus falls by area (a + b). O The producer surplus increases by area (a + b +c+d). The producer surplus falls by area (a+b+c+e+f+g+h). O The producer surplus increases by area (a + b + c). Domestic price with subsidy World price World price with subsidy Quantity What is the net impact on the producer surplus of the export subsidy provided by the domestic government?Suppose Home is a small exporter of wheat. At the world price of 100 US dollars per tonne, Home growers export 20 tons of wheat. Now suppose the Home government decides to support its domestic producers with an specific export subsidy of 40 US dollars per tonne. Explain why consumer and producer surplus can be used to gauge the change in welfare caused by the export subsidy on individuals and firms.Why is a tradable quota more efficient than a traditional quota?
