Question 4 (20 marks = 10 +5+5) Consider two countries A and B producing two goods X and Y. Assume that the standard trade model of chapter 6 holds. A is an exporter of X and importer of Y. B is an importer of X and exporter of Y. Suppose that A is a large country which provides an export subsidy on X. (a) Is country A better off or worse off due to the export subsidy? Explain using the relevant diagrams. Explain, referring to the diagram, what is the "production distortion effect" and the "terms of trade effect" of the export subsidy for A. (b) Is country B better off or worse off due to the export subsidy, holding constant all other factors? Explain using any relevant diagrams. (c) Now consider a country C which exports X. What is the welfare effect on C of A's export subsidy, holding constant all other factors? Please include any relevant diagrams to support your answer. N Question 4 (20 marks = 10 +5+5) Consider two countries A and B producing two goods X and Y. Assume that the standard trade model of chapter 6 holds. A is an exporter of X and importer of Y. B is an importer of X and exporter of Y. Suppose that A is a large country which provides an export subsidy on X. (a) Is country A better off or worse off due to the export subsidy? Explain using the relevant diagrams. Explain, referring to the diagram, what is the "production distortion effect" and the "terms of trade effect" of the export subsidy for A. (b) Is country B better off or worse off due to the export subsidy, holding constant all other factors? Explain using any relevant diagrams. (c) Now consider a country C which exports X. What is the welfare effect on C of A's export subsidy, holding constant all other factors? Please include any relevant diagrams to support your answer. N