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A large country named H is considering an export subsidy to promote the industry that produces good X. The country's excess supply curve is P=2000+2X. The world's excess demand curve is P=5000-10X.
a.) What is the equilibrium quantity and price of X prior to any tariff? (May be fractions of a unit.)
b.) What is the total worldwide economic surplus prior to any tariff?
Now suppose the country imposes a export subsidy of 15% of the value the domestic producers receive from any exports.
c.) What is the equilibrium quantity sold after the subsidy? (May be fractions of a unit.)
d.) What is the effective price (this includes the subsidy) that domestic producers receive for X exports? What price do consumers consumers in the rest of the world pay for X?
e.) What is the worldwide deadweight loss due to the subsidy?
f.) What is the producer surplus after the subsidy? What is the "Terms of Trade" loss for H due to the subsidy?
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