Explore the impact of the removal of export subsidies for world trade in agriculture.

(a) Explain and use well-labeled diagrams to illustrate the welfare effects of the removal of export subsidies by a large agricultural exporting country (like the US or EU). Use a model with two countries, the exporter and the importer (where the importer represents the rest of the world). [15 marks]

(b) The result of the elimination of export subsidies in agriculture has allowed many small countries to shift from importing to exporting agriculture. This effect is generally per- ceived to be a benefit to those countries, but we explored how some countries might not benefit. Explain and illustrate using well-labeled diagrams how the net welfare effect for these countries depends on the relative size of the resulting export surplus they are able to generate due to this shift. [10 marks]