Problem
1. Does persistent dumping into the domestic country necessarily mean that a foreign government is subsidizing the foreign exporting firm? Why or why not?
2. Evaluate this statement: If a tariff is imposed to reduce imports, the balance of trade will surely improve as it is safe to assume that exports will be unaffected by the tariff.
3. In suppose that the home firm's reaction function is flatter than that of the foreign firm. Use a diagram to explain why a point away from equilibrium will lead the firms farther away from the equilibrium position.