Figure 1 shows the good X market in country A. Country A is a small importer...

     

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Figure 1 shows the good X market in country A. Country A is a small importer of good X. In free trade, the cost of importing a unit of good X from country B is $20 per unit, and the cost of importing a unit of good X from country C is $15 per unit. PRICE (S/UNIT) 85 80 75 70 65 60 55 50 45 35 30 25 20 15 10 5 0 Supply A Demand A 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 QUANTITY OF COMMODITY X Assume that country A and country C form a free-trade area (FTA): After forming the free-trade group with country C, determine the quantity of import of good X by country A. [1 mark] i. Explain and calculate the trade-creation effects in country A due to the formation of the free-trade area. [2 marks] iii. Explain and calculate the trade-diversion effects in country A due to the formation of the free-trade areas. [2 marks] iv. Explain and calculate the net welfare effects for country A due to the formation of the free-trade area. [2 marks] Figure 1 shows the good X market in country A. Country A is a small importer of good X. In free trade, the cost of importing a unit of good X from country B is $20 per unit, and the cost of importing a unit of good X from country C is $15 per unit. PRICE (S/UNIT) 85 80 75 70 65 60 55 50 45 35 30 25 20 15 10 5 0 Supply A Demand A 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 QUANTITY OF COMMODITY X Assume that country A and country C form a free-trade area (FTA): After forming the free-trade group with country C, determine the quantity of import of good X by country A. [1 mark] i. Explain and calculate the trade-creation effects in country A due to the formation of the free-trade area. [2 marks] iii. Explain and calculate the trade-diversion effects in country A due to the formation of the free-trade areas. [2 marks] iv. Explain and calculate the net welfare effects for country A due to the formation of the free-trade area. [2 marks]

Answer rating: 100% (QA)

i Given Previous Import Quantity Q 350 Cost from B per unit 20 Cost from C per unit 15 Q Previous Import Quantity Cost from C per unit Q35015 Q2333 ii ... View the full answer