Consider Narnia, a country producing widgets. The widget industry is perfectly competitive. The government of Narnia is worried about imports of widgets displacing domestic widget producers and is considering applying either a tariff or a quota on widget imports.

(a) What are the welfare effects on Narnia of a tariff? What assumptions does your answer depend on? [35 marks]

(b) Now investigate the effects of a quota. What are the welfare effects on Narnia of a quota and what assumptions does your answer depend on? [35 marks]

(c) The government of Narnia is now looking into the possibility of subsidising its exporting producers of widgets. Under what assumptions could such a policy raise welfare in Narnia? [30 marks]

Please send me answer in type form strictly prohibited handwritten solution.

Don't use AI