Essentials of Economics 7th Edition by Gregory Mankiw

Exercise 10

Consider a small country that exports steel. Sup-pose that a "pro-trade government decides to subsidize the export of steel by paying a certain amount for each ton sold abroad. How does this export subsidy affect the domestic price of steel, the quantity of steel produced, the quantity of steel consumed, and the quantity of steel exported? How does it affect consumer surplus, producer surplus, government revenue, and total surplus? Is it a good policy from the stand-point' of economic efficiency? (Hint: The analysis of an export subsidy is similar to the analysis of a tariff.)