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1. Forming free trade areas (FTAs) has become a popular polciy for many govern- ments to promote income and growth of economies. (a) Compare the
1. Forming free trade areas (FTAs) has become a popular polciy for many govern- ments to promote income and growth of economies. (a) Compare the policy of forming FTAs with global free trade in terms of the welfare of the world. State the Theory of the Second Best and explain how it can be applied to assist your answer. (b) Explain the trade creation and trade diversion cases in Viner's analysis of the welfare impacts of a customs union (or FTA). Do you agree or disagree with his results? (c) In the class, a three-country model was introduced to explain the welfare impacts of an FTA between two of the countries. Briefly explain the model and results. In particular, explain how the welfare of each of the countries may be affected by the new FTA. Is there any conflict between the wel- fare impacts on the countries in this model and the welfare impacts you described in (a)? Explain. (d) Explain the Kemp-Wan theorem of welfare effects of FTAs. How is it related to your results in (c)? 1. Forming free trade areas (FTAs) has become a popular polciy for many govern- ments to promote income and growth of economies. (a) Compare the policy of forming FTAs with global free trade in terms of the welfare of the world. State the Theory of the Second Best and explain how it can be applied to assist your answer. (b) Explain the trade creation and trade diversion cases in Viner's analysis of the welfare impacts of a customs union (or FTA). Do you agree or disagree with his results? (c) In the class, a three-country model was introduced to explain the welfare impacts of an FTA between two of the countries. Briefly explain the model and results. In particular, explain how the welfare of each of the countries may be affected by the new FTA. Is there any conflict between the wel- fare impacts on the countries in this model and the welfare impacts you described in (a)? Explain. (d) Explain the Kemp-Wan theorem of welfare effects of FTAs. How is it related to your results in (c)
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