4. The effect of an export subsidy Consider a small country that exports beef. Assume the world price of beef is $85. Suppose the government decides to pay a $10 subsidy on each unit exported. (a) What is the new domestic price of beef as a result of the subsidy? Explain briefly why the domestic price increases as a result of this subsidy. (b) What is the world price of beef after the subsidy? (c) On the graph of the country's domestic market below, indicate the world price and domestic price of beef after the subsidy. Then calculate the following. When calculating changes in surplus, be sure to indicate whether the change is positive (gain) or negative (loss). the change in consumer surplus . the change in producer surplus . the cost of the subsidy (paid by the government) . net change in country's total welfare S 120 S 110 100 90 80 70 60 D 50 0 10 20 30 40 50 60 70 80 90 100 Q (d) We have seen that it is possible for a large country to gain from imposing a tariff on a good they import a lot of. Is this also true in the case of an export subsidy imposed by a large country on a good they export a lot of? (That is, if we now assumed that our country was large, would it be possible for the country to increase its net welfare with the export subsidy policy?) Explain why or why not