Suppose that the world price of sugar is $100 per ton.If a
Large country gives its sugar exporters a subsidy of $50 per
Ton, then it will:
A)enjoy a gain in its total welfare.
B)have neither a loss nor a gain in its total welfare.
C)suffer a loss in its total welfare.
D)have an increase in its consumer surplus only.

Question

Quizplus · Accepted Answer

By providing a subsidy of $50 per ton, the domestic producers can sell their sugar at $50 per ton lower than the world price, which will cause an increase in domestic production and a decrease in sugar imports. As a result, the domestic market will experience a surplus of sugar, which will lead to a decline in the domestic price. However, since the subsidy costs the government $50 per ton, it causes a loss to the government and taxpayers. Also, giving subsidies to domestic producers distorts the market and reduces the efficiency of the economy. Therefore, the country will suffer a loss in its total welfare.

Suppose That the World Price of Sugar Is $100 Per