Question

Suppose Thailand is a large country. Thailand’s demand and supply curves for rice are: D* = 9,800 – 200P S* = -200 + 200Pc. Suppose the Thai government offers the country’s producers an export subsidy of $13.00 per bushel of rice. In doing so, the world price is lowered to $27. Calculate the price paid & quantity demanded by Thai consumers.

Answer 1

The quantity demanded by Thai consumers at the new equilibrium price of $29.33 per bushel is 3,334 bushels.

Step-by-step explanation:

To calculate the price paid and quantity demanded by Thai consumers after the government offers an export subsidy, we need to first determine the effect of the subsidy on the domestic price of rice in Thailand.

The subsidy of $13 per bushel of rice will increase the price received by Thai producers for each bushel of rice they export. With the subsidy, the effective price for Thai producers will be $40 ($27 + $13).

To find the new equilibrium price and quantity in the domestic market for rice, we can set the new supply curve (which includes the subsidy) equal to the original demand curve:

D* = 9,800 - 200P

S* = -200 + 200Pc + 13

Setting D* equal to S*, we have:

9,800 - 200P = -200 + 200Pc + 13

Simplifying and solving for Pc, we get:

Pc = 44 - 0.5P

To find the equilibrium price and quantity in the domestic market for rice, we set Pc equal to P and solve for the quantity demanded:

44 - 0.5P = P

Simplifying, we get:

1.5P = 44

P = 29.33

Therefore, the new equilibrium price in the domestic market for rice is $29.33 per bushel. To find the quantity demanded at this price, we plug the price into the demand curve:

D* = 9,800 - 200P

D* = 9,800 - 200(29.33)

D* = 3,334

Therefore, the quantity demanded by Thai consumers at the new equilibrium price of $29.33 per bushel is 3,334 bushels.