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

The subsidy to sugar exporters will increase their profits, but also increase the quantity supplied and lead to a surplus of sugar in the domestic market. As a result, domestic sugar prices will fall below the world price, reducing the incentive for domestic sugar production and causing a loss in domestic producer surplus. Additionally, the government will have to finance the subsidy, which will lead to a loss in government revenue and potentially result in other economic distortions. Overall, the country will suffer a loss in its total welfare.

Suppose That the World Price of Sugar Is $100 Per