is a large exporter of wheat. The domestic inverse supply function of Home produ
ID: 1126473 • Letter: I
Question
is a large exporter of wheat. The domestic inverse supply function of Home producers is the domestic inverse demand function of Home consumers is given by P-200-40 Suppose that Home given by P-40+4Q5 and Where Q and is are in tons. The import demand function that home producers face in the world wheat market 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 pw 20) If Home government imposes an export subsidy of $60 per unit, then the world price will bethe domestic price will be-, and Home will export tons of wheat. A) $190; $130; 35 B) $180; $120; 30C) $130; $190; 35 D) $120; $180;20 21) The net effect of the export subsidy of $40 on Home's welfare is A) a $1500 decrease B) a $725 decrease C) a $125 increase D) a $1275 decrease 22) If the government decides to impose a production subsidy instead of the export subsidy of $60 in order to increase the domestic production by the same amount that the export subsidy increases (i.e., domestic producers A) S30 would produce the same amount under both policies), then the production subsidy must be S per unit. B) $40 C) $50D)S60Explanation / Answer
When export subsidy of $60 is provided, world price becomes 190 and so total production is 190 = 40 + 4Q pr Q = 37.5. Hence export subsidy increases output from 30 to 37.5
Production subsidy also increases the total production by 7.5 units.
P = 40 + 4(Q + 7.5)
P = 40 + 4Q + 30
Hence the price should be increased by $30. Hence production subsidy of $30 should be given. Correct choice is A.
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