Microeconomics Analysis

7 Pages • Essays / Projects • Year: Pre-2021 • Previously uploaded under: Econ10005 - Introductory Microeconomics

Here is an excerpt of the analysis on an import subsidy: (Professional formatting used in actual document) Before subsidy After subsidy Change Consumer Surplus A+B A+B+C+D+E+F+G +C+D+E+F+G (better off) Producer Surplus C+D+I I -C-D (worse off) Government Expenses Nil -D-E-F-G-H -D-E-F-G-H(worse off) Total Surplus A+B+C+D+I A+B+C+I-H -D-H (dead weight loss) After the subsidy, Mexican maize farmers’ well-being decreases. Without import subsidy, suppliers’ surplus is the area C+D+I, however when the subsidy is applied, producers’ surplus decreased to area I, so the producers have lost surplus C+D, which made them worse off, this can be further explained by that the suppliers were offering the prices between 〖wP〗_1 and P_subsidy after the subsidy cannot trade anymore. After the subsidy, Mexican tortilla makers’ well-being increases, without import subsidy, consumers’ surplus is the area A+B, however after the subsidy is applied, consumers surplus increases to A+B+C+D+E+F+G, consumers have gained surplus C+D+E+F+G, which made them better off, this can be further explained by that the consumers were willing to pay the amount of price between 〖wP〗_1 and P_subsidy now can trade. The subsidy will leave the Mexican maize farmers worse off, Mexican tortilla makers better off and the government worse off, the government’s well-being is decreased by areas -D-E-F-G-H as this is the area calculated as the subsidy times the quantity imported. After calculation however, the consumers’ better off is not enough to offset the total government loss and producers loss. As a result, the society is worse off by the amount so called dead weight loss –D-H.

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