Table 1 Shows The Supply And Demand Schedule Of Leather Belts For Philippines, A Small Nation That Is Unable To Affect The World Price Of Leather Belts. Table 1: Supply And Demand For Leather Belts: Philippines Quantity Supply 36 Quantity Demand 0 Price ($) 90 80 70 60 32 4 28 8 12 24 50 20 16 16 20 40 30 12 24 20 8 28 10 32 0 0 36 Hint Draw This Information

Table 1 shows the supply and demand schedule of leather belts for Philippines, a small nation that is unable to affect the World price of leather belts. Table 1: Supply and Demand for Leather Belts Philippines Price (S) Quantity Supply 90 36 Quantity Demand 0 80 32 4 70 28 8 60 24 12 50 20 16 40 16 20 30 12 24 20 8 28 10 32 0 0 36 Hint: Draw this information on a demand and supply graph. It will help with the analysis. (i) Assume that Italy and China can supply leather belts to Philippines at a price of $20 and $30, respectively. In the presence of free trade, which nation exports leather belts to Phillippines, how many leather belts does Philippines consume and import? [3 points] (ii) Suppose Philippines levies a 100 percent nondiscriminatory tariff on its leather belts imports. Which nation exports leather belts to Philippines? How many leather belts will Philippines produce, consume, and imports? [3 points] (ii) Now suppose Philippines forms a customs union with China. Determine the trade creation effect and the trade diversion effect of the customs union. What is the customs union's overall effect on the welfare of Philippines? [6 points] (iv) Assume instead that Philippines forms a customs union with Italy. Is this a trade diverting or trade creating customs union? By how much does the customs union increase or decrease the welfare of Philippines? [6 points]