Question: Explain the effects that export subsidies can have on Home’s prices, export demand, domestic demand for the exported good, welfare and terms of trade.

Question 1: Consider the situation in which a small home country provides export subsidies.

• Explain the effects that export subsidies can have on Home’s prices, export demand, domestic demand for the exported good, welfare and terms of trade. How would the world’s import price, import demand for the good, welfare and terms of trade be affected? Describe the transition from free trade to the export subsidies trade situation using figures.

• Discuss four possible trade policy tools that a foreign country use to respond to Home’s export subsidies and their effects on the Home country and Foreign country.?

Question 2: Imagine a small Home country with a monopoly changing from free trade to imposing an import quota on its import goods.

2.1 Explain what the effects of the import quota are on the demand for import goods, Home’s welfare, production of the domestic goods (substitutes for the import goods) and prices of the import and domestic goods. Describe the transition from free trade with monopoly to the import quota situation with monopoly. [25%]

2.2. Imagine you are the advisor of a Home country’s government with a monopoly and your country is in free trade. Which policy tool for trade protection would you recommend for the lowest welfare loss possible: an import quota or an import tariff? Explain your choice. [25%]

Question 3: Consider the situation in which a large home country imposes an export tariff on export goods.

3.1 Explain the effects that the export tariff can have on Home’s prices, export demand, domestic demand for the exported good, welfare and terms of trade. How would the world’s import price, import demand for the good, welfare and terms of trade be affected? Explain the transition from free trade to the export tariff trade situation using figures.

3.2 Which trade policy tools could a foreign country use to respond to Home’s export tariff and what would the expected welfare effect be for consumers and producers in the Foreign country?

Question 4:

4.1 Explain the effects of an import tariff in a large home country while having perfect competition on prices (export and import good), production, consumption, utility, import and export, and welfare while having perfect competition. Discuss whether a large country could improve its Terms of Trade by imposing an import tariff. [25%]

4.2 Looking at the past and current trade wars between the EU and the USA, discuss two possible advantages for producers who are producing a substitute of importing goods and two possible disadvantages for consumers who are purchasing the import goods. [25%]