Multiple Choice
Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SG and DG. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit.
Figure 8.1. Effects of a Customs Union
-According to Figure 8.1, the formation of a Greece/Germany customs union would result in
A) $20 of trade diversion.
B) $40 of trade diversion.
C) $20 of trade creation.
D) $40 of trade creation.
Correct Answer:
Verified
Correct Answer:
Verified
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