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 S20 per unit, while France can supply calculators at $30 per unit. Answer 1. Figure 3. Effects of a Customs Uniorn 70 SG 60 50 4 5 67 Quantity of Calculators 2 With free trade, which nation exports calculators to Greece? How many calculators does Greece produce, import, and consume? a. b. If Greece levies a non-discriminatory, per-unit tariff of $20 on imports, which country exports calculators to Greece? How many calculators does Greece produce, import, and consume? What is the impact on consumer surplus and producer surplus, and what will be the deadweight welfare loss to Greece resulting from the $20 tariff? c. d. Suppose Greece forms a customs union with France. Determine the trade-creation effect and the trade-diversion effect of the customs union. What is the overall effect on the welfare of Greece? Suppose Greece had formed a customs union with Germany, rather than France. Is this a trade- diverting or trade-creating customs union? By how much does the customs union increase or decrease the welfare of Greece (as compared to the trade union with France)? e.
