Q. 2 Suppose that the government does not intervene in the market. Compute country B’s welfare under autarky and free trade with the negative production externality. Briefly explain if country A’s welfare is affected by the production externality in B. Do you agree with the claim that welfare under free trade (compared to autarky) improves in both countries when a negative production externality is present ? Briefly explain why

Principles of Microeconomics
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Chapter3: Interdependence And The Gains From Trade
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Q. 2 Suppose that the government does not intervene in the market. Compute country B’s welfare under autarky and free trade with the negative production externality. Briefly explain if country A’s welfare is affected by the production externality in B. Do you agree with the claim that welfare under free trade (compared to autarky) improves in both countries when a negative production externality is present ? Briefly explain why
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