Starting with the given of Problem 1: (a) If Nation A subsequently forms a customs union with
Question:
(a) If Nation A subsequently forms a customs union with Nation B, will Nation A produce commodity X domestically or import it from Nation B or Nation C?
(b) Is the customs union that Nation A forms with Nation B trade creating, trade diverting, or neither?
Problem 1
Suppose that the autarky price of commodity X is $10 in Nation A, $8 in Nation B, and $6 in Nation C and that Nation A is too small to affect prices in Nation B or C by trading.
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a If Nation A forms a customs union with Nation B Nation A will import commodity X from ...View the full answer
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