SCENARIO: FREEDONIAN EXPORTS
In the small country of Freedonia, the domestic demand for
Widgets is represented by P = 100 - 3Q; the home supply
Of widgets is represented by P = 1Q.
Reference: Ref 104
(Scenario: Freedonian Exports) Is the subsidy paid to
Freedonias's widget exporters considered part of the
Deadweight losses of the subsidy?

Question

SCENARIO: FREEDONIAN EXPORTS
In the small country of Freedonia, the domestic demand for
Widgets is represented by P = 100 - 3Q; the home supply
Of widgets is represented by P = 1Q.
Reference: Ref 10­4
(Scenario: Freedonian Exports) Is the subsidy paid to
Freedonias's widget exporters considered part of the
Deadweight losses of the subsidy?

Quizplus · Accepted Answer

The subsidy paid to Freedonia's widget exporters is not considered a deadweight loss because it is simply a redistribution of income within the Freedonian economy. Deadweight loss refers to the loss of economic efficiency that occurs when the marginal cost of a good exceeds its marginal benefit, as is often the case with subsidies.

SCENARIO: FREEDONIAN EXPORTS in the Small Country of Freedonia, the Domestic Demand for Domestic