Question 13 phoductioeaaweight costs D) causes more deadweight loss than the exp

Question

Question 13 phoductioeaaweight costs D) causes more deadweight loss than the export subsidy. Suppose that Home is a small exporter of wheat. The domestic inverse supply function of Home producers, given by P-40+4Q5 and the domestic inver where QS price is as in question 11. se demand function of Home consumers is given by P-2 00-4Q and Q are in tons. Answer questions 11-18 accordingly. For questions 12-18, assume that the world 11) If Home exports 20 tons of wheat under free trade, then the world price of one ton of wheat is A) $120 B) $140 C) $150 D) $160 E)S180 12) If government aims to increase the wheat export by 10 tons, then the government must I. give an export subsidy of $10 per unit. III. give an export subsidy of $20 per unit. A) Only I II. give a production subsidy of $20 per unit. IV. give a production subsidy of $40 per unit. B) Only IV C) I and II DNI and III E)111 and 13) If the government decides to increase the wheat export by 10 tons by imposing an export subsidy, the change in consumer surplus and producer surplus are: A)acs--I 50, PS_ +1400 C) ACS-0, APS +1400 14) If the government decides to increase the wheat export by 10 tons by imposing a production subsidy, the change in consumer surplus and producer surplus are: and -S 15) The net effects of the export subsidy and the production subsidy on national welfare are -S respectively if the government aims increase the wheat export by 10 tons. A) 200; 400 B) 100, 200 C) 400; 200 D) 100; 100 E) 200; 200 II. give a production subsidy of $20 per unit. duction suhsidy of $40 per unit. 16) If the government aims to increase the wheat production by 10 tons, then the government must n rrnort suhsidy of $10 per unit.

Explanation / Answer

13) When exports are now 10 more, they are 30 tons. At 30 tons, price rises to

X = P/2 - 60

30 + 60 = P/2

P* = 180. This is the new export price.

Consumer surplus changes from 0.5*(200 - 160)*10 = $200 to become 0.5*(200 - 180)*5 = $50. Hence there is reduction of $150

Producer surplus changes from 0.5*(160 - 40)*30 = 1800 + to become 0.5*(180 - 40)*35 = 2450. Hence it rises by 650

Correct choice is B

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