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international trade exam.there are some small question? Can you do all .I will take up with your answer. C. Consider the case of an economically

international trade exam.there are some small question? Can you do all .I will take up with your answer.

image text in transcribed C. Consider the case of an economically small economy, producing two goods (steel and textiles), with two factors of production (capital and labor), under constant returns to scale. Suppose at world prices that this country exports textiles and imports steel. Finally, assume (for simplicity) that tastes can be represented by a family of homothetic indifference curves. For reasons that need not concern us, the government decides that home production of steel should be increased. 1. Show that a tariff can accomplish this goal. (5 points) 2. Illustrate and explain the welfare losses caused by imposing the tariff. (5 points) 3. Using the information from the first two parts of this question, explain why economists would not consider a tariff the first-best policy to accomplish this goal and what the first- best intervention would be. (10 points)

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