3. Suppose Home is a small exporter of wheat. At the world price of $100 per ton, Home growers the Home govern- Now suppose 20 tons. export ment 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? b. Calculate the effect of the export subsidy on consumer surplus, producer surplus, and government revenue. c. Calculate the overall net effect of the export subsidy on Home welfare. Home price 140 100 10 20 20 40 40 S D 50 Quantity

Fig: 1