Question: 3. Export Subsidies Given the same setup from the first question, suppose that China aims to encourage production in their export sector by introducing export

3. Export Subsidies Given the same setup from the first question, suppose that China aims to encourage production in their export sector by introducing export subsidies. a. For given world prices, does China's export subsidy make the relative domestic price of industrial equipment higher or lower? (10 pts) b. Use the world diagram for relative supply and relative demand to show the impact of China's policy on relative world prices. (15 pts) c. Does welfare increase or decrease in Belgium and China due to the policy in China? Why? (10 pts) d. Is the outcome consistent or inconsistent with the changes in terms of trade observed for advanced economies and developing Asia between 1986 and 2005? (10 pts)

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