Below is the market for cooking oil in a country.

1. Indicate the domestic equilibrium price and quantity on the graph.

2. Calculate total consumer spending before imports are in the market.

3. Cooking oil may be imported. The world price is $1 per litre. Add the world supply curve to the graph.

4. Explain why domestic suppliers will reduce their production after the entry of foreign producers to the market.

5. The government gives domestic producers a subsidy of 50¢ per litre. Show the effect of this on the graph.

6. Calculate the change in consumer spending before and after the giving of the subsidy.

7. Calculate the change in the revenue of foreign producers when the subsidy is given.

8. Calculate the cost to the government after the subsidy is given.

9. Explain the impact of the subsidy on any two of the stakeholders in the cooking oil market.

Transcribed Image Text:

Price of cooking oil per litre ($) 2 1 0 Spomestic D 1 2 Quantity of cooking oil (millions of litres)