The figure below depicts the steel market for Portugal, a small nation that is unable to affect the world price. Assume that Germany and France can supply steel to Portugal at a price of $200 and $300, respectively.

Figure 8.2. Portugal's Steel Market

-Consider Figure 8.2.If Portugal forms a customs union with France, the resulting trade diversion effect equals $400.

Question

The figure below depicts the steel market for Portugal, a small nation that is unable to affect the world price. Assume that Germany and France can supply steel to Portugal at a price of $200 and $300, respectively.

Figure 8.2. Portugal's Steel Market

-Consider Figure 8.2.If Portugal forms a customs union with France, the resulting trade diversion effect equals $400.

Quizplus · Accepted Answer

The trade diversion effect from forming a customs union depends on the difference in cost between the goods imported from the most efficient producer outside the union and the less efficient producer within the union. Without specific details on costs, tariffs, or the efficiency of producers, it's not possible to determine the exact value of the trade diversion effect.

The Figure Below Depicts the Steel Market for Portugal, a Small