Question
Please refer to the following scenario: Pacifica is a small island nation. It is a relatively low-income country with a per capita income of $12,000
Please refer to the following scenario:
Pacifica is a small island nation. It is a relatively low-income country with a per capita income of $12,000 per year. The economy is mainly agricultural and rice is the major product and also the staple of the local diet. Because it is a small country, Pacifica's agricultural production or consumption could not influence global prices. In order to support local rice production and protect farmers from worldwide competition, Pacifica currently bans imports of rice. A bag of rice consumed on the island is produced by local Pacifica farmers. This policy benefits farmers greatly. A bag of rice in Pacifica sells for $8.00 and 500,000 bags of rice are consumed each year. If consumers were allowed to purchase rice grown abroad, they could purchase bags of rice for $5.00.
If a $3 per bag subsidy was implemented on rice to help the farmers, what would be the total quantity of rice purchased by consumers?
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