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) Zero
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:
A) Zero 
B) $5 
C) $10 
D) $15

Quizplus · Accepted Answer

In a customs union, trade diversion occurs when a country imports from a less efficient partner rather than a more efficient non-member. If Greece forms a customs union with Germany, which is likely more efficient than France, the trade diversion effect would be zero.

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