trade subsidy - detailed analysis

• According to the analysis, does the actual price in the market change with the subsidy?

  No, it stays the same
• In the diagram, what symbol represents the unchanged market price?

  PW
• What happens to domestic demand when the price stays the same?

  It remains unchanged
• What symbol represents the unchanged domestic demand?

  Q2
• Due to the subsidy, how does domestic supply change?

  It increases to Q3
• What happens to the level of imports after the subsidy is introduced?

  Imports decrease
• After the subsidy, what determines the new level of imports?

  The difference between Q3 and Q2
• Before the subsidy, what was the domestic producers' revenue, based on the diagram?

  Area A
• After the subsidy, what area represents the domestic producers' revenue?

  A+B+D+E+F
• What effective price are domestic producers getting after the subsidy?

  PW plus the subsidy
• Before the subsidy, what area represents the revenue of foreign producers?

  B + C
• After the subsidy, what area represents the revenue of foreign producers?

  Area C
• How is the cost to the government calculated in the subsidy diagram?

  Subsidy value times quantity produced
• In the diagram, what area represents the cost to the government of the subsidy?

  D + E + F
• Why is there no loss of consumer surplus in this scenario?

  Because the price doesn't change
• According to the analysis, what area represents the dead weight welfare loss?

  Area F
• What does the dead weight welfare loss represent in this context?

  Inefficient domestic production
• Although the market price remains unchanged, what happens to the effective price domestic suppliers receive?

  The effective price increases
• On the subsidy diagram, what does the vertical distance between the two supply curves represent?

  The value of the subsidy