Question 3 A new source of trade 'iction in the world economy is heating up over the use of pro- duction subsidies to encourage green technologies. For example, the United States has led complaints with the WTO over China's use of production subsidies for its solar and wind-power industries. U.S. exporters claim that they should not have to compete with subsidized producers in China. On the other hand, some are worried that if the U. S. wins its WTO case against the Chinese production subsidies then China might simply replace its subsidy policy with import tariffs to achieve its production goals. Explore this issue by answering the following questions: (a) Beginning from free trade, analyze the effect of a green product production subsidy introduced by a small importer: This subsidy is set to achieve greater production of green goods than would occur under free trade but less production of green goods than would occur under autarky. (b) Next analyze the effect of replacing the production subsidy with an import tariff that achieves the same green good production goal. Which policy instrument, subsidy or tariff, results in higher welfare