Consider a small country that exports rice to the rest of the world at a world price of $200 per ton. With free trade, the country produces 8,000 tons of rice and consumes 5000 tons of rice per year. Suppose that the domestic government now decides to offer an export subsidy of $40 per ton to the domestic rice producers which increases production to 12,000 tons and decreases domestic consumption to 3000 tons per year.

What is the new domestic price of rice?

Question 9 options:

$200

$240

$220

$400

$180