TRADE WARS: Suppose the exporter imposes a 2$ tariff on exports and the importer also

imposes a 2$ tariff at the same time.

(2 points) a) What happens to free-trade equilibrium output, consumption, and imports/exports in each

country. Show in a diagram and explain.

(3 points) b) Does any of the countries gain by this? Explain fully

(5 points) c) Given your results from all of the above, would both countries be better off by simply

sticking to free trade?