Here we have again Piresia, this beautiful country. As suggested by previous advisors, the country released all trade barriers and now it follows a free trade policy with all its trading partners. Recently, the domestic marble ball producers approached the government with their concern that traditional marble ball production and the export products lose their competitiveness on the global market. Government decision makers thus think about applying export subsidies on marble ball exports to other countries. The world market price of marble balls is $5 per piece right now and the Piresian marble ball industry produces 30,000 pieces a year from which 10,000 is exported. The global market for marble balls (including the Piresian market) buys 1,000,000 pieces a year.

• What will happen to the domestic and world market prices of marble balls if the Piresian government applies the export subsidy?
• What is the expected welfare effect? Who wins and who loses with this policy?

          What level of export subsidy would you suggest? 

Answer rating: 100% (QA)

1 After the kind approach of the domestic marble ball producers of Piresia to their government if th... View the full answer