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7. Suppose Home is a small exporter of wheat. The world price of wheat is $12 per ton. Now suppose the Home government decides to
7. Suppose Home is a small exporter of wheat. The world price of wheat is $12 per ton. Now suppose the Home government decides to support its domestic producer with an export subsidy of $8 per ton. Use the following figure, which represents the Home wheat market, to answer the questions below. Home Price EHomo 2000 4000 6000 8000 10000 12000 Quantity (a) What is the quantity exported under free trade and with the export subsidy? (2 points) (b) Calculate the effect of the export subsidy on consumer surplus, producer surplus and govern- ment revenue. (3 points) (c) Calculate the overall net effect of the export subsidy on Home welfare. (2 points)
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