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HW4 International Trade – Country A is a small country that imports

24 / 01 / 2019 Assignments

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HW4 International Trade – Country A is a small country that imports

HW4International TradeQuestion 1Country A is a small country that imports good X and is considering joining a tradebloc. Under free trade, the cost of importing the good from countries that would notbe members of the potential group is $10 per unit. The cost of importing the goodfrom members of the potential group is $20 per unit. Currently, country A imposes auniform tariff of $5 per unit on imports of good X form all sources. Will this countrygain from joining the trade block? Please explain your answer diagrammatically.1Question 2Indicate conditions under which economic embargoes are likely to work on the targetedcountry?2Question 3A small country “Alpha” exports (under free trade) lumber products obtained by cuttingAlpha’s forests. Cutting domestic forests creates negative externalities (soil erosion, lossof wildlife habitat etc.) in country Alpha (externality is restricted domestically). As thenew minister of Interior you are charged with dealing with this externality.(a) Draw a diagram depicting the situation under free trade. Indicate the quantityexported.(b) For the Interior Minister of Trade you need to present a proposal of how tradepolicy might be applied to the problem. What are the policies you suggest?3(c) For the interior minister forestry, you need to present a proposal of how domesticpolicies may be applied to the problem. Please demonstrate your argumentdiagrammatically.(d) Given the choice of policies in (b) and (c), what is your recommendation andwhy? Which of the two plans would be favored by the WTO?Question 4Explain one condition under which a tariff is likely to likely to be rejected and anotherconditions under which it is likely to be imposed in a representative democracy.4

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