Reference no: EM133124393

Suppose the United States provides a production subsidy to its import-competing producers of solar panels (a product the United States imports). For simplicity, assuming the United States is a small open economy,

(a) Use a domestic-market graph to show the effect of the production subsidy on domestic consumer surplus, domestic producer surplus, government expenditure, and total welfare;

(b) How would the effect on domestic consumer surplus change if the consumers have to pay taxes to finance the government expenditure?

(c) Between a tariff and a production subsidy, which policy leads to a greater deadweight loss? Illustrate your answer graphically and identify the extra deadweight loss.

(d) Between a tariff and a production subsidy, which policy is more preferred by domestic consumers assuming that consumers have to pay taxes to finance the government expenditure?

Make sure to graph please