Figure: Home's Exporting Industry II
The graph shows the effect of a subsidy on a large country.
(Figure: Home's Exporting Industry II) According to the
Graph, what is the revenue cost for the government from
The export subsidy?
A)$1,250
B)$12,500
C)$150
D)$1,500

Question

Figure: Home's Exporting Industry II
The graph shows the effect of a subsidy on a large country. 
(Figure: Home's Exporting Industry II) According to the
Graph, what is the revenue cost for the government from
The export subsidy?
A)$1,250 
B)$12,500 
C)$150 
D)$1,500

Quizplus · Accepted Answer

The graph shows that the export subsidy of $2 per unit causes the price of Home's goods in the world market to decrease from $8 to $6 per unit. As a result, the quantity demanded increases from 100 to 150 units, and the quantity supplied increases from 100 to 200 units. The government incurs a revenue cost of $2 per unit for the 6,250 units it exports (150 units exported + 6,100 units domestically consumed). Thus, the total revenue cost for the government is $12,500 (6,250 units x $2 subsidy per unit).