Export Subsidy by a Small Country: Competitive Market - Domestic producers gain e+f+g Export Subsidy, Small Country, - Domestic consumers lose e+f - Subsidy costs the gov't f+g+h - Net loss is f+h (DWL) - Consumption effect (f): - Lost consumer surplus for those consumers squeezed out of the market when the domestic price rises above the world price - Production effect (h): - Loss due to encouraging domestic production that has a resource cost greater than the world price (the world standard for efficient production) a. What are the areas represented by letters in dollar terms? b. Calculate CS,PS,Govt Cost, DWL Export Subsidy, Large Country, Exportable Product Initial price of $100 /unit and export subsidy of $20 /unit causes world market price drop to $88 /unit - Consumers lose ef - Producers gain efg - Gov't cost of subsidy is fghijklm - Net loss is fhijklm c. What are the areas represented by letters in dollar terms? d. Calculate CS,PS, Gov't Cost, DWL Export Subsidy by a Small Country: Competitive Market - Domestic producers gain e+f+g Export Subsidy, Small Country, - Domestic consumers lose e+f - Subsidy costs the gov't f+g+h - Net loss is f+h (DWL) - Consumption effect (f): - Lost consumer surplus for those consumers squeezed out of the market when the domestic price rises above the world price - Production effect (h): - Loss due to encouraging domestic production that has a resource cost greater than the world price (the world standard for efficient production) a. What are the areas represented by letters in dollar terms? b. Calculate CS,PS,Govt Cost, DWL Export Subsidy, Large Country, Exportable Product Initial price of $100 /unit and export subsidy of $20 /unit causes world market price drop to $88 /unit - Consumers lose ef - Producers gain efg - Gov't cost of subsidy is fghijklm - Net loss is fhijklm c. What are the areas represented by letters in dollar terms? d. Calculate CS,PS, Gov't Cost, DWL