Home producers is that Home is a large exporter of wheat. The domestic inverse s

Question

Home producers is that Home is a large exporter of wheat. The domestic inverse supply function of given by P-40+4Q and the domestic inverse demand function of Home consumers is given by P-200-40 Where O and omare in tons. The import demand function that home producers face in the world wheat market is M. = 100-2. Answer questions 19-25 accordingly. 19) Given the domestic inverse supply and domestic inverse demand functions of the Home country, the export supply function of Home can be derived as 20) If Home government imposes an export subsidy of $60 per unit, then the world price will be domestic price will beand Home will export A) $190: S130; 35 B) $180; $120; 30 the S30 3 9035 tons of wheat. C) $130; $190; 35 D) $120; $180; 20

Explanation / Answer

From the domestic demand and supply, export supply function is X = P/2 - 60. Import demand function is M = 100 - P/2.

There is an export subsidy of 60. Hence export supply function is X = P - 60/2 - 60 or X = P/2 - 90

World price is now 100 - P/2 = P/2 - 90

Pw = 190. Domestic price is 190 - 60 = 130. Home now exports 190/2 - 60 = 35 tons

Option A is correct

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