After Brexit, UK is negotiating a free trade area (FTA) with the EU. Without a free trade area, wheat import from UK or Australia (AU) attracts a 100% tariff in the EU. If a free trade agreement is signed between the EU and UK, imports from the UK will attract a zero tariff in the EU while imports from Australia will continue to attract the 100% tariff. The table below presents two scenarios regarding the unit cost of production in the EU, UK and Australia, and the delivered prices in the EU if EU customers buy from the EU, from the UK, or from Australia, without and with the free trade agreement. Table 1: Welfare Implications of Free Trade Area Scenario 1 Scenario 2 EU UK AU EU UK AU Unit costs 20 15 18 20 15 9 Prices with tariff 20 30 36 20 30 18 Prices with FTA with UK 20 15 36 20 15 18 Answer the following questions. All numerical answers must be expressed as decimals (not whole numbers or fractions) and be accurate to two decimal places. (a) Consider scenario 1. In absence of a free trade agreement, would the EU consumers buy from the EU (i.e domestically) or import, and from where if they import? (b) Consider scenario 1. If a free trade agreement is signed between the EU and UK. will the EU consumers buy domestically or import, and from where if they import? (c) Consider scenario 1. After signing the free trade agreement, what would be the resulting change in consumer surplus per unit of consumption in the EU? And the per unit change in tariff revenue is (d) Consider scenario 2. In absence of a free trade agreement, would the EU consumers buy from the EU (i.e domestically) or import? (e) Consider scenario 2. If a free trade agreement is signed between the EU and UK, will the EU consumers buy domestically or import? (f) Consider scenario 2. After signing the free trade agreement, what would be the resulting change in consumer surplus per unit of consumption in the EU? What is the per unit change in tariff revenue? Combining the per unit changes in tariff revenue and consumer surplus, what would be the net effect on welfare? (g) If you're the trade policy advisor to the EU, are you more likely to recommend signing a free trade agreement with the UK under scenario 1 or under scenario 2