International Economics 13th Edition by Robert Carbaugh

Exercise 6

Assume that the nation of Spain is "small" and unable to influence the Brazilian (world) price of steel. Spain's supply and demand schedules are illustrated in Table 6.11. Assume that Brazil's price is $400 per ton of steel. Using graph paper, plot the demand and supply schedules of Spain and Brazil on the same graph.
a. With free trade, how many tons of steel will be produced, purchased, and imported by Spain? Calculate the dollar value of Spanish producer and consumer surpluses.
b. Suppose the Brazilian government grants its steel firms a production subsidy of $200 per ton. Plot Brazil's subsidy-adjusted supply schedule on your graph.
(1) What is the new market price of steel? At this price, how much steel will Spain produce, purchase, and import?
(2) The subsidy helps/hurts Spanish firms because their producer surplus rises/falls by $_____; Spanish steel users realize a rise/ fall in the consumer surplus of $_______. The Spanish economy as a whole benefits/ suffers from the subsidy by an amount totaling $_______.