Question

Use the following to answer questions 32-33: the graph shows information about a small country home exporter. Home price $175 5125 20 40 100 120 Quantity 32. According to the figure, at the world price of $125. there is a_ of_ units in the home market, which is surplus; 60: imported C) surplus; 60; exported shortage: 60; imported D) shortage: 100: exported A) B) 33. According to the figure, the export subsidy results in _ a decrease; $6,500 a decrease; 55,000 in producer surplus by the amount of C) an increase; S5,500 D) an increase; $4,000

Answer 1

32) We can see that at world price level of $125 :-

Supply = 100

Demand = 40

As, Supply > Demand so there is Surplus

Surplus = Supply - Demand = 100 - 40 = 60

Surplus amount is exported.

• So, Option C. Surplus; 60; exported is correct.

33) As under export subsidy the new price line is $175

Producer surplus is the area above the supply curve and below the equilibrium price line.

So, Producer surplus before subsidy is the area below the price line $125 and above supply curve while producer surplus after subsidy is the area below the price line $175 and above supply curve.

So, The producer surplus has increased which is represented by the area between price line $125 and $175.

So, Increase in producer surplus is the area of trapezium = 1/2 * (100+120) * ($175-$125)

= 1/2 * 220 * $50

= $5500

• So, Option C) an increase; $5500 is correct

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