4. Why are rules of origin needed for a free-trade area? How might they be protectionist? 5. Homeland is about to join Furrinerland in a free-trade area. Before the union, Homeland imports 10 million DVD recorders from the outside-world market at $100 and adds a tariff of $30 on each recorder. It takes $110 to produce each DVD recorder in Furrinerland. a. Once the free-trade area is formed, what will be the cost to Homeland of the DVD recorder trade diverted to Furrinerland? b. How much extra imports would have to be demanded by Homeland to offset this trade-diversion cost?noshin 7. Suppose that the United States currently imports 1.0 million pairs of shoes from China at $20 each. With a 50 percent tariff, the consum onsumer price in the United States is $30. The price of shoes in Mexico is $25. Suppose that, as a result of NAFTA, the United States imports 1.2 million pairs of shoes from Mexico and none from China. What are the gains whole? and losses to U.S. consumers. U.S. producers, the U.S. government, and the world as a 8.) In a presentation about Serbia's future entry into the European Union, the speaker indi- cates that the effects of trade creation will be equal to about 2 percent of Serbia's GDP. the effects of trade diversion will be equal to about 1 percent of Serbia's GDP, and the overall effects on Serbia will be a gain in national well-being equal to about 3 percent of its GDP. What do you think is the best explanation of how these numbers fit together? Is anything missing that you can fill in to make better sense of the numbers? 9. What kinds of countries tend to use economic embargoes? Do embargoes have a greater chance of succeeding if they are applied gradually rather than suddenly? 10. Draw a graph like Figure 12.3B. Initially the embargo is the one shown in this graph. Then, half of the nonembargoing countries switch and become part of the embargo. Use your graph to show how this changes the effects of the embargo. Specifically, what are the effects on the initial embargoing countries and on the target country? Does this shift make the embargo more or less likely to succeed? Why? Which of the following trade policy moves is most certain to bring gains to the world as a whole: (a) imposing a countervailing duty against an existing foreign export subsidy, (b) forming a customs union in place of a set of tariffs equally applied to imports from all countries, or (c) levying an antidumping import tariff? (This question draws on material from Chapter 11 as well as from this chapter.) 12. Draw the diagram corresponding to Figure 12.3 for an embargo on imports from the target country. Identify the losses and gains to the embargoing countries, the target coun- try, and other countries. Describe what values of elasticities are more likely to give power to the embargo effort and what values of elasticities are more likely to weaken it