Company X produces printed books, in Country B. Company X imports blank books (to be printed on) from Country A. Company Y produces blank books (to be printed on) in Country A. Company Y produces blank books (to be printed on), in Country A, utilizing paper imports from Company Z, in Country B. Country A imposes a large tariff on paper imports from Country B. In response, Country B imposes the same large tariff on blank books (to be printed on) from Country A.

After reading the above hypothetical, answer and explain the following:

• Question 1:
  • Part A) What theory of trade best describes why Country A would imposed a paper tariff on Country B?
    • Porter's Diamond
    • Cage Theory
    • New Trade Theory
    • Absolute Advantage
    • Comparative Advantage
    • Mercantilism
  • Part B) What theory of trade best describes why Country B produced and exported paper to Country A?
    • Porter's Diamond
    • Cage Theory
    • New Trade Theory
    • Absolute Advantage
    • Comparative Advantage
    • Mercantilism