Suppose that Home is a large exporter of wheat. The domestic inverse supply func

Question

Suppose that Home is a large exporter of wheat. The domestic inverse supply function of Home producers is given by P-40+4Qs and the domestic inverse demand function ef Home consumers is given by P-200-40P where Q% and Q are 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 the 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) S190; $130; 35 B) S180; $120;30C) $130; $190; 35 tons of wheat. 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 would produce the same amount under both policies), then the production subsidy must be S per unit. A) S30 B)S40C) $50D)S60 23) If the government imposes a production subsidy which would yield the same level of domestic production as the export subsidy of $60 per unit, then the new export supply curve of Home is

Explanation / Answer

Export supply function is X = Pw/2 - 60. Now export subsidy is 30 so Pw rises by 30

X = Pw + 30/2 - 60

X = Pw/2 - 15 + 60

X = Pw/2 - 45

Hence correct option is B.

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