University of HelsinkiAbstract. The welfare implications of trade are examined in a general equilibrium framework where private oligopolies cause distortions. It is shown that a measure of trade policy should be carried out when it will increase production for the market yielding the highest rent. If the price elasticity of domestic demand is low, the opening of trade lowers the level of welfare although domestic products were optimally subsidized. Necessary and sufficient conditions for trade to increase welfare are found and the optimal commodity taxes are derived.
Professor Emeritus