1. Trade Policy: Export Subsidy Home exports guitars. Home's demand for guitars is Qd = 1400 P. Home's supply of guitars is Q3 2 BF 600. (a) Determine the export supply function of guitars for the Home country. What is the autarky price of a guitar at Home? (b) If the Foreign import demand function is QMD* = 1000 P* nd the free-trade price of a guitar, PW and the volume of Exports from Home to Foreign, QW. What is the increase to World Surplus as a result of the move from Autarky to Free trade? (0) Producers at Home lobby the government for support for the Home guitar industry. One policy that the Home government considers is: (i) a specic export subsidy, s'3 = $100, paid to producers for each guitar empoed. Determine the price of a guitar in Home and Foreign when there is an export subsidy, se. Determine the new volume of exports from Home to Foreign. Calculate the change to Home's welfare under the export subsidy (change relative to free trade). ((1) The second policy that the Home government considers is: (ii) a specic production subsidy, sp = $100, paid to producers for each guitar pro duced. The production subsidy is paid for units exported as well as units that are sold within the Home country. (One way to model the production subsidy is to shift Home's supply function down by 3\" = $100). Compare the production subsidy and export subsidy with respect to impact on: - the volume of exports by Home - the surplus to consumers at Home