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7. Steel Industry

Consider a small country that exports steel. Suppose the following graph depicts the domestic demand and supply for steel in this country. One of the two price lines represents the world price of steel.

Use the following graph to help you answer the questions below. You will not be graded on any changes made to this graph.


Because this country exports steel, the world price is represented by___(P1, P2).


Suppose that a "pro-trade" government decides to subsidize the export of steel by paying $10 for each ton sold abroad.


With this export subsidy, the price paid by domestic consumers is__per ton, and the price received by domestic producers is__per ton. The quantity of steel consumed by domestic consumers    , _________( increases, decreases, remains unchanged) the quantity of steel produced by domestic producers__(decreases, increases, remains unchanged)  , and the quantity of steel exported_____(increases, remains unchanged, decreases).

True or False: With the export subsidy, domestic producers will sell steel to domestic consumers and sell the rest abroad.

__True

__False


Under the export subsidy, consumer surplus is___and producer surplus is___. Government revenue___ by_____. As a result, total surplus______(remains unchanged, decreases, increases) .

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