(Scenario: Sugar Trade in Birdonia) in Autarky, Suppose That Equilibrium

question 106

Multiple Choice

(Scenario: Sugar Trade in Birdonia) In autarky, suppose that equilibrium sugar price is $100 per ton in Birdonia, a small agricultural nation. Now, suppose Birdonia engages in free trade with the rest of the world. The world price of sugar is $125 per ton. Now suppose that the government of Birdonia gives an export subsidy of $50 per ton to its sugar producers. What will happen to the domestic price of sugar in Birdonia?

• A) It will not change.
• B) It will rise to $175 per ton.
• C) It will rise to $150 per ton.
• D) It will rise to between $125 and $175 per ton.

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