Unformatted text preview: conclusion from part (ii)? (You can answer the second half of this question by explaining how the conclusion in part (ii) would have changed if the stability condition had been violated.) 4) Use a partial equilibrium (linear) model to answer this question. Each unit of food produced in a small country causes γ dollars of environmental damage to society; food producers do not internalize this damage. Under free trade the country is a food importer. (i)What is the optimal ( f rst best) policy. Name it (i.e. tell me what kind of a policy it is) and illustrate it graphically (i.e. show how to f nd its level). (ii) Now suppose that the country uses a trade policy to remedy the externality. Describe (name) the optimal trade policy and show how to f nd its level graphically. (iii) Do producers prefer the f rst best policy or the second best trade policy? Explain. 1...
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- Fall '07
- International Trade, HOS, secondary burden, secondary blessing, Stopler Samuelson Theorem.