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 the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule S_{M (with subsidy)}.As a result of the subsidy Mexican steel producers gain ____ of producer surplus.

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 the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule S_{M (with subsidy)}.As a result of the subsidy Mexican steel producers gain ____ of producer surplus.

Quizplus · Accepted Answer

With the subsidy, the supply curve shifts to the right from S0 to S1U1B1M (with subsidy), causing the equilibrium quantity to increase from Q0 to Q1U1B1M and the equilibrium price to decrease from $200 to $100. The producer surplus gained is the area above the supply curve and below the equilibrium price, which is the shaded area P1U1B1MCP0. This amounts to $600 per ton ((($200 subsidy - $100 equilibrium price) x 5 million tons)/2). Therefore, the answer is C.

Figure 51 Illustrates the Steel Market for Mexico, Assumed to Be