ABSTRACT
This chapter examines the welfare consequences of various commercial policies in the context of international trade. In the first best framework the following theorems are normally presented: (i) free trade in a welfare sense is better than no trade; (ii) a deterioration (improvement) in the terms of trade lowers (raises) welfare; and (iii) a lower tariff is superior to a higher tariff in terms of its welfare ranking provided inferior goods are ruled out in consumption.' These three results may be discussed in a distortionary framework and then the first best results may be derived as a subset.
