. Consider a market for computers in two large countries. Suppose the exporting country imposes a specific export subsidy equal to PH – PL. Afterwards the importing country retaliates with a countervailing duty also set equal to PH – PL. Use the diagram below to answer the following questions.
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A. What is the change in consumer surplus in the exporting country when the export subsidy is imposed? |
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B. What is the change in producer surplus in the exporting country when the export subsidy is imposed? |
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C. What are government subsidy payments in the exporting country when the export subsidy is imposed? |
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D. What is the net national welfare effect in the exporting country when the export subsidy is imposed ? |
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E. What is the net national welfare effect in the importing country when the subsidy is imposed ? |
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F. What is the change in consumer surplus in the importing country (relative to subsidy in place) with the CVD? |
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G. What is the change in producer surplus in the importing country (relative to subsidy in place) with the CVD? |
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H. What is the change in govt. revenue in the importing country (relative to subsidy in place) with the CVD? |
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I. What is the change in govt. revenue in the exporting country (relative to subsidy in place) with the CVD? |
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J. What condition must hold for the CVD to be welfare improving for the importing country (rel. to subsidy)? |
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