Figure 5.1 illustrates the steel market for Mexico,assumed to be a "small" country that is unable to affect the world price.Suppose the world price of steel is given and constant at $200 per ton.Now suppose the Mexican steel industry is able to obtain trade protection.
Figure 5.1.Alternative Nontariff Trade Barriers Levied by a "Small" Country

-Consider Figure 5.1.Suppose instead that the Mexican government provides a subsidy of $200 per ton to its steel producers,as indicated by the supply schedule SM (with subsidy).??As a result of the subsidy,the welfare loss to Mexico due to inefficient domestic production equals:

Question

Figure 5.1 illustrates the steel market for Mexico,assumed to be a "small" country that is unable to affect the world price.Suppose the world price of steel is given and constant at $200 per ton.Now suppose the Mexican steel industry is able to obtain trade protection.
Figure 5.1.Alternative Nontariff Trade Barriers Levied by a "Small" Country
 
-Consider Figure 5.1.Suppose instead that the Mexican government provides a subsidy of $200 per ton to its steel producers,as indicated by the supply schedule SM (with subsidy).??As a result of the subsidy,the welfare loss to Mexico due to inefficient domestic production equals:

Quizplus · Accepted Answer

The welfare loss to Mexico due to inefficient domestic production equals the area of the triangle formed by the supply curve without subsidy (S) and the supply curve with subsidy (SM). The height of the triangle is $200 (the amount of the subsidy), and the base of the triangle is 2 tons (the quantity of steel produced with the subsidy). Therefore, the area of the triangle is $200 * 2 / 2 = $200.

Figure 51 Illustrates the Steel Market for Mexico,assumed to Be a a "Small