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Consider a large country that exports good Z. Some of the total quantity of Z that...

  1. Consider a large country that exports good Z. Some of the total quantity of Z that is domestically produced is consumed by domestic consumers and the rest of it is exported. Then suppose that the government places a subsidy s on each unit of Z exported. While, obviously, this subsidy increases the quantity of Z exported, some of the production of Z continues to be purchased by domestic consumers. Show the effects of this export subsidy using a carefully labelled demand and supply diagram.

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Rahul Sunny answered 2 years ago
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