Suppose the world price of sugar, Pw, is higher than country A’s autarky price, and country A offers its sugar producers a production subsidy $s/unit. Use a domestic-market graph: (a) show the effect of the production subsidy on country A’s sugar price, domestic supply, domestic demand, export quantity, consumer surplus, producer surplus, and government expenditure assuming that country A is a small country; (b) identify country A’s net welfare change as a result of the production subsidy assuming country A is a small country. (c) Suppose country A alternatively offers its sugar producers an $s/unit export subsidy. Between production subsidy and export subsidy, which would be preferred by country A’s consumers? (d) Between production subsidy and export subsidy, which would lead to a greater deadweight loss?
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Q3. Suppose the world
(a) show the effect of the production subsidy on country A’s sugar price, domestic supply, domestic
(b) identify country A’s net welfare change as a result of the production subsidy assuming country A is a small country.
(c) Suppose country A alternatively offers its sugar producers an $s/unit export subsidy. Between production subsidy and export subsidy, which would be preferred by country A’s consumers?
(d) Between production subsidy and export subsidy, which would lead to a greater
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