2. Over the last several decades, Australia has become uncompetitive in the manufacture of solar panels. The international market price for solar panels is significantly lower than the autarky price in Australia. Due to this, while some solar panels are still produced in Australia, most of Australia's consumption of solar panels is of foreign-produced solar panels. Assume that Demand for solar panels is linear and downward-sloping, and that domestic Supply is linear and upward sloping. Suppose the autarky price for solar panels is $1000/kW, while this international price is only $500/kW. a) Perform a Welfare Analysis on the free trade equilibrium. That is, describe and show the Consumer Surplus, Producer Surplus, Government Tax Receipts, Total Surplus, and any Deadweight Loss. Suppose the government comes to believe that domestic production of solar panels causes a moderate positive externality on Australian society (through, for example, increased support for renewable energy and follow-on reduced greenhouse emissions; or through research and development spillovers). Suppose this externality is worth $250/kW for each kW system produced domestically. b) Suppose there is the described externality, and no government intervention. Perform a Welfare Analysis on the free trade equilibrium. That is, describe and show the Consumer Surplus, Producer Surplus, Government Tax Receipts, Total Surplus, and any Deadweight Loss. The government decides to internalise this externality by increasing domestic production. c) The government introduces a tariff of $250/kW on foreign imports of solar panel systems. (i) Argue why this would increase the price paid by domestic consumers to $750 per kW. (ii) Perform a Welfare Analysis on the effect of this tariff. That is, describe and show the Consumer Surplus, Producer Surplus, Government Tax Receipts, Total Surplus, and any Deadweight Loss. (iii) For any Deadweight Loss identified, give an intuitive description of why this deadweight loss exists. d) Suppose the government instead applies a $250/kW subsidy to domestic production. (i) Argue why domestic consumers would continue to face a market price of $500/kW. (ii) Perform a Welfare Analysis on the effect of this subsidy. That is, describe and show the Consumer Surplus, Producer Surplus, Government Tax Receipts, Total Surplus, and any Deadweight Loss. (iii) For any Deadweight Loss identified, give an intuitive description of why this deadweight loss exists. e) Compare the effects of these two policies. Make a recommendation to the government of which policy they should implement, if they are only going to implement one of them