Question: Country H, which is small, exports good X. Its excess supply curve is given by P=100+4X. The world price ratio Px/Py is P=200. It is suggested, but not required, that you use a graph to help answer the questions below. (Note that answers may be fractions of a unit.)
1. Find the free trade equilibrium quantity of exports.
2. What is the producer surplus in this equilibrium?
3. Country H elects to offer a 25% subsidy to exports of X. What is the equilibrium quantity of exports with this subsidy?
4. What is the producer surplus after the subsidy?
5. What is the government expenditure on the subsidy?
6. What is H's deadweight loss due to the subsidy?