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 had formed a customs union with Germany, Portugal's welfare would have decreased by $500.

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 had formed a customs union with Germany, Portugal's welfare would have decreased by $500.

Quizplus · Accepted Answer

In the context of international trade theory, forming a customs union typically leads to trade creation and trade diversion. While it's difficult to assess the specific impact without seeing "Figure 8.2," generally, forming a customs union can increase a country's welfare by providing access to a larger market and more efficient production from partner countries. The statement oversimplifies the complex effects of forming a customs union, which can include both welfare gains and losses, depending on various factors such as the structure of tariffs, the nature of goods involved, and the relative sizes and economic conditions of the countries involved.

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