Answer all four questions below. Answers should be supported by clear, thorough reasoning. You can consult any other resources about your answers. Domestic Redistribution and Factor Proportion Model 1. What does the Hecksher-Ohlin/Stolper-Samuelson model demonstrate (who gains, who loses) and what are the shortcomings of the model (what does it fail to capture about reality)? 2. Answer the same question for the specific factors model. Policy Distortions 1. What are the assumptions for an optimal subsidy? If these assumptions are met, why is a subsidy superior to a tariff? 2. Explain one of the market failures that quotas can lead to under perfect competition? Imperfect competition? (Make sure you explain why/how these market failures arise)
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