Assume the following equations accurately represent the market for "widgets" in two countries:

HOME: PD= 100- 5Q

Ps=5Q

FORGEIN: PD= 100-3Q

Ps= 2Q

a) Please model the market for widgets in both countries. Is trade possible? Who would export and who would import? Explain.

b) Calculate the ES in autarky and under conditions of free trade. Assume the world price is $45.

c) Apply a $2.50 tariff and recalculate economic surplus (including tariff revenue). Has ES gone up with imposition of the tariff?

d) Evaluate the following statement regarding the infant industy argument for protection:

"Protection often results in infant industries never ‘growing up.'" How might protection prevent the firm from "growing up"?

e) Consider the following quote from the New Yorker:

"the main burden of trade-related job losses and wage declines has fallen on middle-and lower-income Americans. But... the very people who suffer most from free trade are often, paradoxically, among the biggest beneficiaries." Do you agree? Do you disagree?