7. Steel Industry

Consider a small country that exports steel. Suppose the following graph depicts the domestic demand and supply for steel in this country. One of the two price lines represents the world price of steel.

Use the following graph to help you answer the questions below. You will not be graded on any changes made to this graph.

TrianglePolygon010020030040050060070080090010001009080706050403020100Price of Steel (Dollars per ton)Quantity of Steel (Tons)DemandSupplyP1P2

Because this country exports steel, the world price is represented by .

Suppose that a "pro-trade" government decides to subsidize the export of steel by paying $10 for each ton sold abroad.

With this export subsidy, the price paid by domestic consumers is

per ton, and the price received by domestic producers is

per ton. The quantity of steel consumed by domestic consumers , the quantity of steel produced by domestic producers , and the quantity of steel exported .

True or False: With the export subsidy, domestic producers will not sell any steel to domestic consumers.

True

False

Under the export subsidy, consumer surplus is

and producer surplus is

. Government revenue by

. As a result, total surplus .