What will be the cost of such a subsidy to the government

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Reference no: EM13219041

A large country has a domestic demand for sugar given by P=100-Q and domestic supply given by P=Q. The world demand for the country's export is given by P=50-Q.

a) Find the equilibrium price and quantity in the domestic market when no trade is allowed.

b) Derive the country's export supply curve.

c) If there is free trade, how many units will the country export?

d) The government introduces a subsidy s=10 per unit of sugar exported and at the same time it doesn't let any imports in. Calculate the new (i) domestic price, consumption and production, (ii) world price and quantity exported by the country. What will be the cost of such a subsidy to the government?

e) Now suppose the government decides to subsidize the production of sugar (regardless of who it is sold to). The government wants to achieve the same increase in domestic production as in part d). What should be the amount of such production subsidy? What will be the domestic price, consumption and production? What will be the cost of such subsidy to the government? What will be the quantity exported?

Reference no: EM13219041

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