Return to the example of Problem 2. Starting from free trade, assume that Foreign offers exporters a subsidy of 1.5 per unit. Calculate the effects on the price in each country and on welfare, both of individual groups and of the economy as a whole in both countries.

Data From Problem 2

Now add Foreign, which has a demand curve D* = 60 - 10P and a supply curve S* = 20 + 10P.