Country H, which is large, exports good X. Its excess supply curve is given by P=100+4X. The world's excess demand curve for X is 600-2X. 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.)
a. Find the free trade equilibrium quantity and price of exports.
b. What is the producer surplus in this equilibrium?
c. Country H elects to offer a 25% subsidy to exports of X. What is the equilibrium quantity of exports with this subsidy?
d. What is the producer surplus after the subsidy?
e. What is the government expenditure on the subsidy?
f. What is the deadweight loss due to the subsidy?
g. Calculate the "Terms of Trade" loss for H due to the subsidy.
The answer to any of these will be helpful!!