Dixon Workbook help in regards to a subsidy graph (1 Viewer)

[piethepker]

In regards to the graph above, can someone help me understand what exactly is happening?

I'm thinking that the world price is $5, and quantity demanded at WP is 80 and supply is 20. Then, the size of the subsidy is 4 dollars, quantity is supplied is 50 (after subsidy), and imports are 30. Gov expenditure is 30 x 4 so 120, increase in domestic market share is 30, and decrease in imports are 30. Is this correct? there doesn't appear to be answers.

However, on both subsidy graphs in the riley and dixon textbook, demand and supply meet at a new equilibrium. Why doesn't it is this case?

Thanks

 

[elkedag]

Yep, that's almost what I have. Before the subsidy, imports should be 60.
The subsidy is $4 per unit on domestic production, or 4x50 = $200 in total

 

[piethepker]

Another question,

with tariffs, say the world price is $10 and tariff price is $12, overseas producers after the tariff price has been enacted overseas producers still get 10 dollars per good. EG, after tariff there are 50 imports, so 50 x 10 = 500

However, with Quotas, after the tariff price has been enacted, do overseas producers get as revenue the world price or the new quota price. WP is 10, quota price is 12 and imports are 50 after quota (as above)

Thanks

 

[qwert73]

I think they would get $10x50 as the government earns the extra $2 from the tariff, not the producer. The producer os still selling at $10

 

[elkedag]

Another question,
However, with Quotas, after the tariff price has been enacted, do overseas producers get as revenue the world price or the new quota price. WP is 10, quota price is 12 and imports are 50 after quota (as above)

There is no 'quota' price per se, but the importer will sell at their reservation price for the new quantity (i.e. at 12). This is not necessarily revenue neutral for governments, however, as they also may be able to charge for import licences.