ANSWER ONE OF THE TWO QUESTIONS 1. Suppose cotton which is an intermediate input for the textile industry, is pro- duced only in Brazil and the U.S.A. under perfectly competitive conditions That is, the international price of cotton is affected by policy-induced supply shocks in the two countries. However, these two countries are small open economies in the market for textile products. Consider two alternative policy options for the US government: (a) subsidizing the production of cotton, and (b) subsidizing the exports of cotton. (i) Identify all the affected parties in the two countries and in the rest of the world for each of the two policy options (ii) Discuss how those parties are effected under the two policy options. iii) Which of the two policy options is better for the US? 2. Suppose China, India and Bangladesh are three producers of textile products. The product market is perfectly competitive. The unit cost of producing textiles in China, India and Bangladesh are $2, $4, and $5 respectively. (i) What will the market outcome be when India and Bangladesh impose tariffs on textile imports at the specific (unit) rate of $3.5 and $2.5 respectively? (ii) What will be the market outcome when India and Bangladesh form a Free Trade Area (FTA)? (iii) Will the forming of the FTA be beneficial to the two countries? (iv) Will the outcome be any different if India and Bangladesh form a Customs Union, rather than an FTA, with a common external tariff of $2.5