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Assume Lesotho imports tyres from Namibia and South Africa at the free trade prices of L30 and L20 per ton of tyre respectively. In autarky,

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Assume Lesotho imports tyres from Namibia and South Africa at the free trade prices of L30 and L20 per ton of tyre respectively. In autarky, Lesotho's domestic price of tyres is L70 and 40 tons of tyres are produced and consumed per annum. Use this information, with the aid of a diagram to comprehensively explain the concept of trade diversion. [15 marks]

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