Two years ago, the WTO negotiated a package intended to reduce trade barriers. Developed countries agreed to eliminate farm export subsidies. (I exaggerated what actually happened.) Developed countries are net exporters of farm products. As a group, developed countries comprise a large economy. Use appropriate diagrams and an explanation to show the economic welfare effects (i.e., changes in consumer surplus and producer surplus) of this reduction in farm export subsidies on:(a) developed countries (use one graph to represent them).(b) a small developing country which is a net importer of farm products. The small country practices free trade. (c) a small developing country which is a net exporter of farm products. The small country practices free trade.

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Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter33: International Trade

Section: Chapter Questions

Problem 6QP

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Two years ago, the WTO negotiated a package intended to reduce trade barriers. Developed countries agreed to eliminate farm export subsidies. (I exaggerated what actually happened.) Developed countries are net exporters of farm products. As a group, developed countries comprise a large economy. Use appropriate diagrams and an explanation to show the economic welfare effects (i.e., changes in consumer surplus and producer surplus) of this reduction in farm export subsidies on:

(a) developed countries (use one graph to represent them).

(b) a small developing country which is a net importer of farm products. The small country practices free trade.

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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