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Export taxes and subsidies

Please find the attached file. I need a detailed solution.


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See the attached file "milk". The amount exported before the subsidy is indicated by the green line. The export subsidy is the the amount indicated by the purple line. The price at free trade is Pft, and after the subsidy the price in the exporting country increases to Pex while the price to importing countries falls to Pim. This is because producers have an incentive to export and will demand a higher price to keep the product in the country. Quantity sold in the exporting country falls to Q1 and quantity sold to importing countries increases to Q2. Consumer surplus decreases by the light blue areas, and is now only given by the the pink area. Producer surplus increases by the yellow and light blue areas, and now encompasses the green, light blue, and yellow areas. The cost to the government is t the red, yellow, and orange areas. Deadweight losses are the producer effect, in orange, and the consumer effect, in red.

A tax on grain exports would causes the price in the exporting country to fall and the price in other countries to increase. See the attached file "grain." The export tax ...

Solution Summary

Effects of taxation and subsides on international trade; marginal analysis as applied to studying for tests