Find out change in government costs under subsidy policy

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Reference no: EM1367366

Q. Assume that American s can buy any number of sugars from aboard at cost of Px. If re were no foreign market, domestic cost of sugar (where US supply curve crosses US demand curve) would equal P1 which lies above world cost of Px. Government is considering two alternative policies to help domestic sugar producers. Under policy one, government would impose a tariff (assume that re are still some imports after tariff). Under policy two, government would provide a per-unit subsidy to domestic producer. Assume amount of subsidy is selected so as to increase domestic production by same amount that would occur under tariff policy.
a. Find out change in consumer surplus and producer surplus under each policy.
b. Find out change in government costs under subsidy policy. Find out change in government income under tariff policy
c. Find out and compare deadweight loss (if any) of each policy.
Draw graph first:

Reference no: EM1367366

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