Trade Restrictions Government imposed flooring and Government subsidies


1. Please briefly evaluate the following arguments: true or false? Please explain why?
(a) A foreign firm that competes in prices with a domestic firm in the domestic market suffers from facing a quota.
(b) Suppose that two firms, producing substitute but differentiated products, compete in prices. A government-imposed floor on firm 1's price may increase firm 1's profit.
(c) Suppose a domestic firm and a foreign firm compete in quantities in the foreign market. The domestic firm benefits from an export subsidy that induces it to expand its output.

2. Explain how the following factors may increase the difficulty of sustaining cooperative pricing:
(a) reaction time and detection lag
(b) small or failing firms
(c) competition in both quality and price
(d) asymmetry between firms


These two questions belong to Economics and they are about trade restrictions such as quota, government imposed flooring, subsidies given by governments for exports by domestic markets, etc. are all discussed in the question. And also the factors that influence co-operative pricing are discussed in the solution as well.

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