The nation of Acirema is “small” unable to affect world prices. It imports peanuts at a world price of $10.
Its demand curve is: D = 400 – 10P and its supply curve is: S = 50 + 5P.
Now suppose Acriema imposes a production subsidy of $2 per unit produced by Acriema’s firms. Calculate and graph the new equilibrium with the production subsidy in place. Calculate the net change in welfare experienced by Acriema as a result of the production subsidy.