5. Agricultural export subsidies in a small nation The followinggraph shows the market for wheat in Canada, where DC D C is thedemand curve, SC S C is the supply curve, and PW P W is the freetrade price of wheat. Assume that Canada is a relatively smallproducer of wheat, so changes in its output do not affect the worldprice of wheat. Also assume that Canada is currently open to freetrade, and domestic consumers are able to purchase wheat at theworld price with negligible transportation costs.

Suppose a subsidy of $40 per ton is granted to exporters inCanada, allowing them to sell their products abroad at prices belowtheir costs. Assume that trade restrictions are also put in placein order to prevent domestic consumers from buying wheat abroad atthe world price.

Use the grey line (star symbols) to indicate the world price ofwheat plus the subsidy on the following graph. Then use the blackpoint (plus symbol) to indicate the price of wheat in Canada andthe quantity demanded at that price. Finally, use the tan point(dash symbol) to indicate the price of wheat received by Canadianproducers with the subsidy and the quantity of wheat they willsupply at that price.

Export subsidies result in a welfare loss to the home countrydue to the protective and consumption effects. In order todetermine the magnitude of these effects, you must compare thechange in consumer and producers surplus against the cost of thesubsidy.

On the previous graph, use the green quadrilateral (trianglesymbols) to indicate the loss in consumer surplus due to the exportsubsidy. Then use the purple quadrilateral (diamond symbols) toindicate the gain in producer surplus as a result of the exportsubsidy.

The taxpayer cost of the export subsidy equals to :________________

Using all of the previous information, compute the value ofdeadweight loss in Canada as a result of the export subsidy.

Deadweight LossDeadweight Loss	= =	Loss in Consumer Surplus+Cost of Subsidy?Gain in Producer SurplusLoss in Consumer Surplus+Cost of Subsidy?Gain in Producer Surplus
	= =

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PRICE (Dollars per ton) 400 Dc 240 200 X 160 120 360 320 280 80 40 0 0 150 300 450 600 750 900 1050 1200 QUANTITY (Tons) Pw 1350 1500 SC Pw+ Subsidy 4. in Canada in Canada Loss in CS Gain in PS PRICE (Dollars per ton) 400 Dc 240 200 X 160 120 360 320 280 80 40 0 0 150 300 450 600 750 900 1050 1200 QUANTITY (Tons) Pw 1350 1500 SC Pw+ Subsidy 4. in Canada in Canada Loss in CS Gain in PS