b calculate the effect of the production sub sidy on consumer surplus
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Question
b. Calculate the effect of the production sub-
sidy on consumer surplus, producer surplus,
and government revenue.
c. Calculate the overall net effect of the pro-
duction subsidy on Home welfare. Is the
cost of the production subsidy more or less
than the cost of the export subsidy for the
small country? Explain.
Home
price
140
100
10
20
20
40
40
50
Quantity/n(i
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5. Refer to Problem 3. Suppose Home is a
small exporter of wheat. At the world price of
$100
per ton, Home growers export 20 tons.
But rather than an export subsidy, suppose
the Home government provides its domestic
producer with a production subsidy of $40 per
ton. Use the following figure to answer these
questions.
a. What is the quantity exported with the pro-
duction subsidy?