Trade Subsidy (Detailed Analysis)

• Subsidy diagram analysis

  1. Draw subsidy diagram

  2. Analyze impacts

  3. Price unchanged at PW

  4. Domestic demand unchanged at Q2

  5. Domestic supply increased to Q3

  6. Imports decreased from Q1-Q2 to Q3-Q2

  7. Domestic producer revenue increased from a to a+b+d+e+f

  8. Foreign producer revenue decreased from b+c to c

  9. Government cost is d+e+f

  10. No deadweight loss of consumer surplus, but deadweight welfare loss of f
• Domestic producer revenue increased from a to a+b+d+e+f
• Foreign producer revenue decreased from b+c to c
• Government cost is d+e+f
• No deadweight loss of consumer surplus, but deadweight welfare loss of f