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Q3 (30 points): Suppose country A is a large open economy whose price of solar panels is lower than the world price, P*, and country
Q3 (30 points): Suppose country A is a large open economy whose price of solar panels is lower than the world price, P*, and country A offers its solar panel producers an export subsidy $s/unit. Use a domestic-market graph to: (a) show the effect of the export subsidy on the world price of solar panels, country A's domestic price, export quantity, consumer surplus, producer surplus, government expenditure, and total welfare; (b) Assuming that consumers are also taxpayers that pay for the government's subsidy expenditure in the above graph, identify the total change in consumer surplus due to the export subsidy. (c) Use a separate domestic-market graph to show the effect of export subsidy on an IMPORT country, including its import price, import quantity, consumer surplus, producer surplus, and total welfare. Your
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