export subsidies and import taxes are both price policies that can change the domestic price of food so that it differs from the world price. in this worksheet, we will examine how export subsidies and import taxes work. while analyzing this, we will think about who benefits/loses from these policies.
Export Subsidy: An export subsidy means that exporters receive an extra payment from the government for the food they export. For each unit of food they export, they receive the world price (Pw) plus the subsidy.
Carefully examine Figure 1 and answer questions 1-10 below.
Figure 1: Demand and Supply for an Exporter Country with Export Subsidy
Which letter represents the domestic supply quantity (Qs) before the subsidy policy?
w
x
y
z
Which letter represents the domestic demand quantity (Qd), before the subsidy policy?
w
x
y
z
From Figure 1, the quantity of food exported (Qe) before the subsidy policy is equal to:
y-x
y-w
z-x
z-w
Which letter(s) represent(s) the consumer surplus before the subsidy? Select all that apply.
a
b
c
d
e
f
g
h
i
Which letter(s) represent(s) the consumer surplus after the subsidy? Select all that apply.
a
b
c
d
e
f
g
h
i
Which letter(s) represent(s) the producer surplus before the subsidy? Select all that apply.
a
b
c
d
e
f
g
h
i
Which letter(s) represent(s) the producer surplus after the subsidy? Select all that apply.
a
b
c
d
e
f
g
h
i
Which letter(s) represent(s) the government costs of the subsidy policy? Select all that apply.
a
b
c
d
e
f
g
h
i
Who is better off (i.e. increased surplus or revenue) after the subsidy? Select all that apply.
Consumers
Producers
Government
Who is worse off (i.e. decreased surplus or revenue) after the subsidy? Select all that apply.
Consumers
Producers
Government