Suppose the U.S. and Chile are two large countries that produce grapes. With free trade, the world price of grapes is $420 per ton in 2015. With free trade, the U.S. local quantity supplied/production of grapes is 210 million tons and the U.S. imports a total of 70 million of grapes from Chile in 2015. In 2016, the Chilean government offers every domestic firm in its grape industry an export subsidy of $70 per ton. Thereafter, the world price of grapes falls to $350 per ton. As a result, the U.S. imports a total of 112 million tons and the U.S. local quantity supplied/production of grapes falls to 182 million tons. In response to the export subsidy, U.S. domestic grape producers complain to Sacramento and Washington, D.C. in 2017 that Chile's export subsidy is unfair competition and violates international norms about fair trade. The U.S. government files a complaint with the World Trade Organization (WTO) because it believes that Chile is using a prohibited subsidy that is harming the grape industry. To placate domestic grape producers, the U.S. government imposes a countervailing duty of $70.

3. Suppose the U.S. and Chile are two large countries that produce grapes. With free trade, the world price of grapes is $420 per ton in 2015. With free trade, the U.S. local quantity supplied/production of grapes is 210 million tons and the U.S. imports a total of 70 million of grapes from Chile in 2015. In 2016, the Chilean government offers every domestic firm in its grape industry an export subsidy of $70 per ton. Thereafter, the world price of grapes falls to $350 per ton. As a result, the U.S. imports a total of 112 million tons and the U.S. local quantity supplied/production of grapes falls to 182 million tons. In response to the export subsidy, U.S. domestic grape producers complain to Sacramento and Washington, D.C. in 2017 that Chile's export subsidy is unfair competition and violates international norms about fair trade. The U.S. government files a complaint with the World Trade Organization (WTO) because it believes that Chile is using a prohibited subsidy that is harming the grape industry. To placate domestic grape producers, the U.S. government imposes a countervailing duty of $70. a. Calculate the net national welfare to the U.S. economy when Chile imposes an export subsidy. (Hint: calculate the before and after effects on the U.S. economy). Show your work. b. Calculate the net national welfare to the U.S. economy when the U.S. retaliates and imposes a countervailing duty on imported Chilean grapes. (Hint: calculate the before and after effects of the countervailing duty on the U.S. economy). Show your work. c. Which country is effectively paying for the countervailing duty