(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand for widgets is represented by P = 100 - 3Q; the domestic supply of widgets is represented by P = 1Q. Is the subsidy paid to Freedonia's widget exporters considered part of the deadweight losses of the subsidy?
A) Yes: they are a payment to Freedonian exporters.
B) Yes: they are paid by Freedonian exporters that supply the domestic market.
C) No; they are a redistribution of income within the Freedonian economy.
D) No; consumers of Freedonian widget exports pay the subsidies.

Question

Quizplus · Accepted Answer

The subsidy paid to Freedonian widget exporters is not considered part of the deadweight losses of the subsidy because it is a redistribution of income within the Freedonian economy. It is not a payment by Freedonian exporters that supply the domestic market or a payment made by consumers of Freedonian widget exports. Nor is it considered a payment to Freedonian exporters because the subsidy is a payment made to exporters by the government, not by other exporters.

(Scenario: Freedonian Exports) in the Small Country of Freedonia, the Domestic