Question
Consider the following HO Model: Suppose Japan is relatively abundant in K (capital) compared to Canada, and the production of beef is relatively labor-intensive compared
Consider the following HO Model:
Suppose Japan is relatively abundant in K (capital) compared to Canada, and the production of beef is relatively labor-intensive compared to the production of autos. In the initial equilibrium, Canada and Japan had free trade. Use free trade as the benchmark for comparison for all the trade policies to be examined below. Also, there are only these two countries in the world, and both are large countries.
(i) Now suppose Canada is considering whether to impose a quota on its imports. Use the appropriate diagrams to briefly explain how the implementation of the quota would affect
(a) World welfare (Hint, use world export supply and import demand)
(b) Canada's welfare
(c) Japan's welfare
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