Question 2 (20 marks) 2.1 Suppose that Home is a small exporter of wheat. At the world price of $50 per ton, Home exports 40 tons. Now suppose that the Home government decides to support its domestic producers with an export subsidy of $10 per ton. You may assume that demand and supply curves are linear. World price _ Draw a diagram to illustrate the effects of export subsidy. Calculate the effect of the export subsidy on consumer surplus, producer surplus and government revenue (the cost of subsidy). Calculate the overall net effect of the export subsidy on Home welfare. 2.2 Rather than an export subsidy, suppose the Home government provides its domestic producers with a production subsidy of $10 per ton. World price Domestic price __ Domestic consumption _50 Domestic production 1 10 Calculate the effect of the production subsidy on consumer surplus, producer surplus and government revenue (the cost of subsidy). Calculate the overall net effect of the production subsidy on Home welfare. Is the social cost of the production subsidy larger or smaller than the social cost of the export subsidy for a small country? Question 1 (20 marks) The following table summarizes two hypothetical situations in the market for PC games in a large economy. The first column depicts the situation in the presence of a $20 per unit tariff on imported PC games. The second colunm represents the situation under free trade. You may assume that demand and supply curves are linear. World price Domestic price Domestic consumption Domestic production Draw a diagram for domestic market to illustrate the effect of the tariff on domestic and world \"m" \"$2\" $ $ 3 prices and quantities. Calculate the changes in domestic consumer surplus, producer surplus, and tariff revenue resulting from the tariff. Calculate the deadweight loss and the terms-of-trade gain resulting from the tariff. Is the country worse off or better off with the tariff