International Economics 10th Edition by Paul Krugman,Maurice Obstfeld ,Marc Melitz

Exercise 2

In the trade scenario in problem 1, due to overfishing, Norway becomes unable to catch the quantity of fish that it could in previous years. This change causes both a reduction in the potential quantity of fish that can be produced in Norway and an increase in the relative world price for fish,

a. Show how the overfishing problem can result in a decline in welfare for Norway.
b. Also show how it is possible that the overfishing problem could result in an increase in welfare for Norway.