Question

Although each part of the question builds off of the previous parts, I need help with f and g if possible.

3. Variation N2. As before, let Q4-520-100P and 80 +100P, and Q900 300P and ká) Recover the inter national trade equilibrium from Problem 2 (part b), and sketch the position in the domestic food market in the Rest of the world. Be sure to show domestic pre-trade price, the price with trade, and quantity exported in the latter case. uppose the government in the Rest of the world would like to encourage further food exports to Home and provides an mport tariff, export subsity creates a wedge between the prices paid by consumers and recieved by producers. Let the higher of the two price be Pst and the lower one be Ps-. Argue that producers in the Rest of the world receive Ps+ for each unit they sell domestically or export, while consumers in Home pay only PS export of subsidy of s cents per each unit exported. Analogously to le) Modify your sketch in part (a) above by including two new price levels and show the new level of d If subsidy provided to the producers in the Rest of the world is 20 cents per unit, ie, s 0.20 exports from the Rest of the world find international trade equilibrium with export subsidy: find the price Pst received by producers received in the Rest of the world, price Ps- paid by the consumers in Home, and the new quantity of exports/imports traded in the world market Does the subsidy work? By how much have exports changed relative to part (a)? (f) What proportion of the subsidy s 0.20 do the producers in the Rest of the world keep? And what proportion is shifted to the consumers in Home? Eompere-these-proportions-te-the-ones you (g) Find the total cost of subsidy to the government of the Rest of the world (h) Similarly to the case of import tariff, label the corresponding regions in your diagram for the Rest of the world with letters A, B, C, D, and E. Then find symbolically change in consumer surplus, change in producer surplus, and cost to the government. Add up those amounts symbolically to find the net effect of the export subsidy. What can you say about the net effect of the subsidy on the Rest of the world? (i) Compute the net effect of the export subsidy on the Rest of the world 0) Lastly, explain the economic meaning/significance of region E. (Hint: review the case of import tariff and think by analogy.)

Answer 1

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