Suppose a small island nation imports sugar for its population
at the world price of $1,500 per ton. The domestic market for sugar
is shown below.
If the government provides a subsidy of $500 per ton, then producer
surplus will be ______ per day.
Select one:
a. $0
b. $1,000
c. $4,000
d. $8,000
Homework Answers
Ans - A) $0
There is no producer surplus at all as the equilibrium quantity at $1500 is 8 tons which shows that the total value of sugar sold = 1500*8= $12000
When the price falls to $1000 due to subsidy of $500,then the total value of sugar sold =1000*12= $12000
As the total revenue remains the same in both the cases, there is no producer surplus.
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