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

-Consider Figure 8.1.Suppose Greece had formed a customs union with Germany rather than France.The value of the trade diversion effect would be
A) $0.
B) $5.
C) $10.
D) $15.

Question

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

-Consider Figure 8.1.Suppose Greece had formed a customs union with Germany rather than France.The value of the trade diversion effect would be

Figure 8.1. Effects of a Customs Union

-Consider Figure 8.1.Suppose Greece had formed a customs union with Germany rather than France.The value of the trade diversion effect would be
A) $0. 
B) $5. 
C) $10. 
D) $15.

Quizplus · Accepted Answer

A customs union with Germany would not cause trade diversion because Germany is likely to be a more efficient producer than France, so Greece would import from Germany without trade barriers, maintaining efficient trade.

Figure 81 Depicts the Supply and Demand Schedules of Calculators for for Greece