(Table: Demand and Supply for Gloves) The United States can also
Import gloves from China at $4 per pair and from Mexico at $5 per
Pair.Currently, the United States imposes a specific tariff of $2 on its
Glove imports.How much trade in gloves is diverted in the U.S.
Mexican freetrade area?

Question

(Table: Demand and Supply for Gloves) The United States can also
Import gloves from China at $4 per pair and from Mexico at $5 per
Pair.Currently, the United States imposes a specific tariff of $2 on its
Glove imports.How much trade in gloves is diverted in the U.S.­
Mexican free­trade area?

Quizplus · Accepted Answer

To determine how much trade in gloves is diverted in the U.S.-Mexican free-trade area, we need to compare the prices of gloves in the United States, China, and Mexico, taking into account the specific tariff of $2 on glove imports in the United States.

If gloves were imported from China, they would cost $4 per pair, but with the $2 tariff, the total cost would be $6 per pair.
If gloves were imported from Mexico, they would cost $5 per pair, but since there is a free-trade area with Mexico, there is no tariff applied, so the total cost remains at $5 per pair.

Accordingly, the United States will import gloves from Mexico to take advantage of the lower price, so the quantity of gloves imported from China will decrease by the difference in price, which is $1 per pair.
Quantity of gloves imported from China = (QdUS - QsUS-China) = (18 - 14) = 4 pairs of gloves
Quantity of gloves diverted in U.S.-Mexican free-trade area = (QsUS-China - QsUS-Mexico) = (14 - 10) = 4 pairs of gloves

Therefore, the answer is D, which is 4 pairs of gloves.

(Table: Demand and Supply for Gloves) the United States Can