Trade Problem Set 90 2-9

1. Consider the two different trade policy actions (both applied by the domestic country) listed along the top row of the following Table. In the boxes, indicate the effect of each policy on the variables listed in the first column. Use a partial equilibrium model to determine the answers. You do not need to show your work. Assume that none of the policies begin with, or result in, prohibitive trade policies. Also assume that none of the policies correct for market imperfections or distortions. Use the following notation:

                                                +    the variable increases
                                                -     the variable decreases
                                                0    the variable does not change
                                                A   the variable change is ambiguous (i.e. it may rise, it may fall)

For example, an import tariff decrease by a large country will cause a decrease in the domestic price of the import good, therefore a “-“ is placed in the first box of the table.

	I Import tariff decrease from the optimal tariff by a large country	II Import quota (administered by giving away quota tickets) by a small country
Domestic Price
Domestic Consumer Welfare
Domestic Producer Welfare
Domestic Government Revenue
Domestic National Welfare
Foreign Price
Foreign Consumer Welfare
Foreign Producer Welfare
Foreign National Welfare

International Trade Theory and Policy - Chapter 90: Last Updated on 3/07/08