Trade Problem Set 100 2-2

1.  Consider each of the following imperfect market situations.  From the following list of policy options. First, LIST the trade policy that can raise national welfare, then LIST the policy most likely to be the first best policy. Policy choices may be used more than once.

Policy Options:  An import tariff, an import ban, an export tax, an export ban, an export subsidy, a production tax, a production subsidy, a consumption tax, a consumption subsidy. 

	Trade Policy	1st Best Policy
A.  A small country where production by an export industry causes pollution.
B.  A small country in which the import-competing industry develops innovative cost-saving production techniques that spillover for use in other domestic industries
C.  A country with monopsony power in trade
D. A small country that exports red wine, consumption of which (in small quantities) causes positive health effects.

International Trade Theory and Policy - Chapter 100: Last Updated on 1/06/08