Eastwood's ECO486 Home Page        Suggested answers

1. In his article "Is Free Trade Passé?" Krugman identifies two arguments against free trade. What are they?

2.  In the Boeing-Airbus example present by Krugman, why are subsidies so crucial? Suppose the US committed itself to a subsidy equal to the EU. Would this commitment change the outcome of the game? How might Europe respond?

3. What policy issues confront a government attempting to implement a strategic trade policy?
   i.    How would one attempt to measure the positive externalities associated with research and development?
   ii.    Could the US Congress implement a strategic trade policy impartially? Would any new institutions help in conducting strategic trade policy?
   iii.    Do you think that the government would do a superior job in allocating scarce capital to private industry than private capital markets?

4. Could the arguments for strategic trade policy be used to support anti-dumping legislation?

5. What is Krugman's conclusion?

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