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# Calculator Market for Venezuela

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The attached graph shows the calculator market for Venezuela, assumed to be a "small" country that is unable to affect the world price. (S)Venezuela is the domestic supply schedule and (D)Venezuela is the domestic demand schedule.

1. Consider the attached graph. Suppose the rest of the world supplies calculators to Venezuela at a price of \$4 each. With free trade, how much do Venezuelan imports total? Explain how you arrived at your answer.

2. Consider the attached graph. Assume the Venezuelan government grants its manufacturers a production subsidy of \$4 per calculator. After the subsidy is granted, how much do Venezuelan imports total? Explain how you arrived at your answer.

3. Consider the attached graph. What is the cost of the production subsidy to the Venezuelan government?

4. Consider the attached graph. How much is the increase in Venezuelan producer surplus under the production subsidy?

5. Consider the attached graph. How much overall welfare loss for Venezuela does the production subsidy result in?

#### Solution Preview

1. Consider the attached graph. Suppose the rest of the world supplies calculators to Venezuela at a price of \$4 each. With free trade, how much do Venezuelan imports total? Explain how you arrived at your answer.
Kindly think in the following terms:Venezuelan calculator imports would amount to 20, The reasoning is that at \$4 the demand for calculators is 24 however, at \$4 the Venezuelan production is 4 and so 24 - 4 = 20 imports.
2. Consider the attached graph. Assume the Venezuelan ...

#### Solution Summary

Examine the calculator market for Venezuela.

\$2.19