1. (Export subsidy) Home production of steel is given by S" =p, with home demand given by D" =9-7 p. Foreign demand for steel exports is given by D* = 27-2 7 p where p" is the price paid by the foreign purchasers of exports. These schedules are drawn accurately in figures below. P 18 SH 18 DH D O 9 O 27 X Figure 1 Figure 2a. Write the expression for the home country's export supply curve and draw this curve in Figure 2. b. Depict the free trade equilibrium in the two diagrams, labelling the equilibrium price as PF , the volume of exports as XF , and the levels of home consumption and production as OF and ZF , respectively. What are the values for these? c. Suppose the home government wants to use an export subsidy to increase the volume of steel export to 15 units. What price ( Ps ) will home suppliers need to receive to induce export supply of 15 units? What price ( Ps ) will foreign buyers be prepared to pay to purchase 15 units, and hence what is the required size of the subsidy per unit? What is the total cost of the subsidy to the government? d. Depict the post-subsidy equilibrium in Figure 2, labelling the prices ps and Ps as well as the post-subsidy volume of exports Xs e. In Figure 1, depict the post-subsidy equilibrium, labelling the new levels of consumption and production of steel as Qs and Zs , respectively. What are the values for these? f. In Figure 1, shade and label the area measuring the consumption deadweight loss and the area measuring the production deadweight loss. Obtain the values of these efficiency losses. In Figure 2, shade and label the area that measures the sum of these deadweight losses. g. Aside from the efficiency losses just discussed, there is other effect that needs to be taken into account in calculating the overall welfare effect of the export subsidy on the home country. Shade and label the area in Figure 2 that measures this additional effect. h. What is the size of the overall net welfare effect in the home country of the export subsidy? Indicate whether it is positive or negative