As of 2002, members of the European Monetary Union agreed to replace their currencies with the
A) mark.
B) dollar.
C) franc.
D) euro.

Question

Quizplus · Accepted Answer

Greece's demand schedule intersects with Germany's supply curve at a price of $20 per unit (point A on the graph), while it intersects with France's supply curve at a price of $30 per unit (point B on the graph). If Greece joins a customs union with Germany, it can import calculators at a lower price of $20 per unit. This will shift its demand curve up to D1U2B1GS1U2B0, and result in a decrease in its domestic production from 40 to 20 units. If Greece joins a customs union with France, it will continue to import calculators at a higher price of $30 per unit, and its domestic production will also decrease from 40 to 20 units. Thus, the best choice is D, because the adoption of the euro by the European Monetary Union makes it easier for Greece to join a customs union with Germany, and leads to a higher level of consumer surplus and a lower level of deadweight loss.

As of 2002, Members of the European Monetary Union Agreed