The Market For Wheat In Canada Essay Assignment Paper
The following graph shows the market for wheat in Canada, where DC
is the demand curve, SC
is the supply curve, and PW
is the free trade price of wheat. Assume that Canada is a relatively small producer of wheat, so changes in its output do not affect the world price of wheat. Also assume that Canada is currently open to free trade, and domestic consumers are able to purchase wheat at the world price with negligible transportation costs. Suppose a subaidy of $80
per ton is granted to exporters in Canada, allowing them to sell their products abroad at prices below their costs. Assume that trade restrictions are also put in place in order to prevent domestic consumers from buying wheat abroad at the world price. Use the grey line (star symbols) to indicate the world price of wheat plus the subsidy on the following graph. Then use the black point (plus symbol) to indicate the price of wheat in Canada and the quantity demanded at that price. Finally, use the tan point (dash symbol) to indicate the price of wheat received by Canadian producers with the subsidy and the quantity of wheat they will supply at that price. Export subsidies result in a welfare loss to the home country due to the protective and consumption effects. In order to determine the magnitude of these effects, you must compare the change in consumer and producers surplus against the cost of the subsidy. On the previous graph, use the green quadrilateral (triangle symbols) to indicate the loss in consumer surplus due to the export subsidy. Then use the purple quadrilateral (diamond symbols) to indicate the gain in producer surplus as a result of the export subsidy. The taxpayer cost of the export subsidy equals The Market For Wheat In Canada Essay Assignment Paper
In a small nation, when an export subsidy of $80
per ton is given, then the price rises to $200+$80 = $280
as depicted in figure 1.
Loss in consumer surplus = area highlighted in green in figure 1 = (280-200) * 100 + 1/2*(300-100) * (280-200) = 8,000 + 8,000 = $16,000
Gain in producer surplus = area highlighted in purple in figure 2 = (280-200) * 500 + 1/2* (280-200) * (700-500) = 40,000 + 8,000 = $48,000 The Market For Wheat In Canada Essay Assignment Paper
Please follow above graph.
Taxpayer cost of the export subsidy = amount of subsidy * quantity exported = $80 * (700-100) = $48,000
Deadweight loss = Loss in consumer surplus + Taxpayer cost of the export subsidy - Gain in producer surplus = $48,000 + $16,000 - $48,000 = $16,000
Please follow above graph.
I hope this answer will helps you. Please do comment if you have any concerns with provided solutions. Please provide positive rating that will helps me to solve more questions. Thank you Friend The Market For Wheat In Canada Essay Assignment Paper
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