Suppose that a country is an exporter of solar panels. The government wants to increase solar panel exports and pays a subsidy on solar panel exports. That is, if firms export solar panels, they receive an additional subsidy from the government, so that the price they get for their exports is higher than the world price of solar panels.

a.Assume the country introducing the subsidy is a small player in the world market for solar panels.

i.(2 marks) Draw a clearly labelled graph to represent the country's market for solar panels. Clearly identify the aeras representing consumer surplus, producer surplus and government revenue.

With the support of the graph drawn in point (i), carefully explain the effect of the subsidy on:

j.(2 marks) Consumer surplus

k.(2 marks) Producer surplus

l.(2 marks) Government revenue

(2 marks) Total welfare