申論題

2. There are two large countries H and F. Each country can choose its trade policy between free trade and protection. If both countries choose free trade, the welfare is (welfare of H, welfare of F)=(20,20). If H chooses free trade but F chooses protection, according to the optimal tariff theory, F can obtain more gains from trade at the expense of H, so that (welfare of H, welfare of F)=(-20,30). On the contrary if H chooses protection while F chooses free trade, the welfare is (welfare of H, welfare of F)=(30, -20). However, if both countries choose protection, the welfare level moves down toward that near autarky. Therefore, (welfare of H, welfare of F)=(-10,-10). Answer the following questions.

(B) (10 points) What is the value of a bilateral trade agreement?