Question 1.Cambonesia is a small exporter of bananas. Without trade, the price for bananas is $1,200 per tonne.
The world price of bananas is $2,000 per ton. Currently, Cambonesian exporters pay $500 for every tonne of bananas shipped abroad. Suppose that the government of Cambonesia decides to pay domestic producers half of the transportation costs for every tonne of banana exported. Discuss the welfare implications of such a policy in the market for bananas in Cambonesia. Illustrate answer with appropriate diagrams. ( consider the impact on consumer surplus, producer surplus, the government’s revenue or expenditure, and deadweight loss (if any), within the market.)
Question2. In an effort to encourage clean energy usage, suppose that the government offered a per unit subsidy (β) to buyers in the market for roof-solar-panels in Cambonesia. Currently, the supply of solar panels in Cambonesia is constrained by its manufacturing capacity, but the government is confident that this problem will be reduced in the future with increased political and investment support. Using the information given, discuss the welfare implications of this subsidy in the market for roof-solar-panels in Cambonesia. Please illustrate your analysis with appropriate diagrams. (consider the impact on consumers, producers, the government’s revenue or expenditure, and deadweight loss (if any), within the market.)