Reference no: EM131405526

Each year, consumers in a small country purchase 1 million pounds of sugar at the global price of $1.50 per pound. Domestic firms produce 500,000 pounds and domestic consumers imports the remainder. Policymakers of the world's major supplier of sugar begin an export-subsidy program that rewards firms for exporting sugar. This program causes the global price of sugar to drop to $1 per pound. The domestic quantity demanded in the small country climbs to 1.3 million pounds, and the domestic quantity supplied falls to 300,000 pounds.

Draw a diagram of the small-country market for sugar under free trade, and with the export subsidy in place.