Consider a small country that exports steel. Suppose the following graph depicts
ID: 1110961 • Letter: C
Question
Consider a small country that exports steel. Suppose the following graph depicts the domestic demand and supply for steel in this country. One of the two price lines represents the world price of steel Use the following graph to help you answer the questions below. You will not be graded on any changes made to this graph 100 90 Triange 80 70 80 2 Polygon 40 20 10 0 100 200 300 400 500 600 700 800 900 1000 Quantity of Steel Tons) Because this country exports steel, the world price is represented by Suppose that a "p e" government decides to subsidize the export of steel by paying $10 for each ton sold abroad With this export subsidy, the price paid by domestic consumers is ton. The quantity of steel consumed by domestic consumers per ton, and the price received by domestic producers is , the quantity of steel p by domestic producers , and the quantity of steel exported True or False: With the export subsidy, this country will start importing steel from abroad O TrueExplanation / Answer
a) The world price is represented by the line P2 i.e at $60
b) Price paid by domestic consumers is $70 per ton (world price = $60, export subsidy = $10, hence $70) and the price received by donestic producers is $70 per ton. (the price received by the donestic producers also rises). the quantity of steel consumed by domestic producers decreases and the quantity of steel exported increases. ( The rise in price will cause the consumers to demand less and the producers to supply more.)
c) false. ( The sellers gain signficantly due to the export subsidy so instead of importing they will be exporting after the demand has been met by selling to the domestic consumers)
d) Consumer surplus = 1/2 * (90-70)*200 = $2000
Producer surplus = (10*200)+(3*0.5*10*100)+(10*(600-200))
= 2000+1500+4000 =$7500
Government revenue = -10* (600-200)
= -$4000
As the government revenue decreases by $4000, the total surplus also decreases.