International Trade Theory and Policy
by Steven M. Suranovic

Trade 90

Trade 90

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.


Import tariff decrease
from the optimal tariff
by a large country

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