I.Assume that the EU subsidizes the exports of tomatoes to support employment in agriculture. Supply and demand of European producers and consumers are equal to p = 200+5_qs and p = 500 - q_d respective (where process are in and quantities in tons). Under free trade, the EU is a net exporter of tomatoes and exports 30 tons every day at 475 per ton. Assume that under free trade, the global price is 475 per ton. Now, to support employment in agriculture, the EU starts subsidizing every ton of exports by about 4.2% such that the price European producers get, after the subsidy, rises from 475/ton to 495/ton. Assume the EU is a price taker and cannot affect the world price.

What happens to European production once the subsidy is in place (i.e. price is 495/ton)?

_{(Select each correct answer.)}

oEuropean producers will produce more tomatoes

oEuropean producers will produce fewer tomatoes

oEuropean production remains unchanged

oEuropean producers stop selling tomatoes to European consumers

oEuropean producers stop exporting tomatoes

What happens to European consumption once the subsidy is in place?

_{(Select each correct answer.)}

oEuropean consumers no longer buy any tomatoes

oEuropean consumers buy more tomatoes

oEuropean consumers buy the same amount of tomatoes

oEuropean consumers exclusively consume European tomatoes

oEuropean consumers exclusively consume imported tomatoes

II.What is the effect on daily EU consumer surplus?

_{(Use a positive number for an increase and a negative number for a decrease.)}

III.What is the effect on daily EU producer surplus?

_{(Use a positive number for an increase and a negative number for a decrease.)}

IV.How much does this subsidy program cost the EU daily?

_{(Use a positive number for the cost.)}

V.What is the daily change in social welfare and why?

_{(Hint: Welfare is the difference between the cost of the subsidy program and the increase in producer and consumer surplus number for anincrease and a negative number for a decrease.)}