How to use graphical analysis to show the welfare effects of the subsidies on the

two countries?

Question 2: Quotas and Export Subsidies in a Large Open Economy Suppose there are two large countries, Home and Foreign , we use * to label variables for Foreign. A single homogenous good, a USB adapter (in millions), is produced by both countries. The demand and supply functions at Home and Foreign are as follows. delQP Qs=4+2P Q3=163P Q:=8+3P 1. In the previous problem set, the Government imposed a tariff of 0.5. What is the quotaequivalent of the tariff? 2. Will the welfare outcome for home under a quota always be the same as under the import tariff? Under what conditions will the two instruments result in the same net welfare gain? 3. Now suppose that Home country does not use any instrument to intervene free trade, but the government of Foreign country decides to provide export subsidies to all of the USBs that its domestic producers export. Use graphical analysis to show the welfare effects of the subsidies on the two countries. 4. What would be the change in welfare in Home, Foreign, and the World if the export subsidy is 1