Suppose the U.S. supply and demand curves for wheat cross at a price of $5 per bushel, but American producers can sell as much wheat as they want to on the world market at a price of $8 per bushel. Now suppose the government offers American farmers a subsidy of $1 for every bushel of wheat that they ship abroad. (Wheat sold in the U.S. earns no subsidy.)

Q1. What price must Americans pay for wheat before the subsidy is implemented? What price must Americans pay for wheat after the subsidy is implemented? What is the price U.S. wheat farmers feel they are receiving after the subsidy is implemented?

Q2. Before the subsidy is implemented, calculate the gains and losses to all relevant groups of Americans.

Q3. After the subsidy is implemented, calculate the gains and losses to all relevant groups of Americans. What is the deadweight loss due to the subsidy?