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3 . The Netherlands are a major producer of grains, such as wheat, corn, and rice. In 2 0 0 8 the Dutch government, concerned
The Netherlands are a major producer of grains, such as wheat, corn, and rice. In
the Dutch government, concerned that grain exports were driving up food prices for
domestic consumers, imposed a tax on grain exports.
a Draw the graph that describes the market for grain in an exporting country. Use this
graph as the starting point to answer the following questions.
b How does an export tax affect domestic grain prices PD
c How does it affect the welfare of domestic consumers, the welfare of domestic
producers, and government revenue?
d What happens to total welfare in the Netherlands, as measured by the sum of
consumer surplus, producer surplus, and tax revenue? What is the size of the
deadweight loss?
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