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Question 3: (A) Suppose NationA subsidizes its exports to protect domestic industries, and Nation B responds by imposing a countervailing tariff to offset the subsidy,

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Question 3: (A) Suppose NationA subsidizes its exports to protect domestic industries, and Nation B responds by imposing a \"countervailing\" tariff to offset the subsidy, so that in the end, relative prices in Nation B are unchanged. What happens to the terms of trade? What about welfare in the two countries? (B) Suppose, on the other hand, that Nation B retaliates with an export subsidy of its own, contrast the result with question (A)

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