Suppose that upon entering the European Union (EU), it is discovered that the cost of automobile production in Poland is
Posted: Wed Apr 27, 2022 1:11 pm
Suppose that upon entering the European Union (EU), it is
discovered that the cost of automobile production in Poland is
€14,000 while it is €20,000 in Germany. Suppose that the EU, which
has a customs union, has an X percent tariff on automobiles and
that the costs of production are equal to Y (valued in euros) in
Japan. Comment on whether the addition of Poland to the European
Union would result in trade creation or trade diversion under the
following scenarios:
a. X = 50% and Y = €10,000
b. X = 100% and Y = €10,000
c. X =100% and Y = €8,000
discovered that the cost of automobile production in Poland is
€14,000 while it is €20,000 in Germany. Suppose that the EU, which
has a customs union, has an X percent tariff on automobiles and
that the costs of production are equal to Y (valued in euros) in
Japan. Comment on whether the addition of Poland to the European
Union would result in trade creation or trade diversion under the
following scenarios:
a. X = 50% and Y = €10,000
b. X = 100% and Y = €10,000
c. X =100% and Y = €8,000