Will there necessarily be gains from the formation of such a customs union?

Figure 7.1 shows an importing country before the formation of a customs union. Sn represents the sup Show more Figure 7.1 shows an importing country before the formation of a customs union. Sn represents the supply from future non-members Sm represents the supply from future members and T is the tariff. Assume that after the formation of the customs union T is maintained against non-members and eliminated for members. Where necessary use letters from Fig. 7.1 to answer the following questions. a) What is the level of domestic production domestic consumption and imports prior to the formation of the customs union? From which nation will these imports be purchased? b) What is the level of domestic production domestic consumption and imports after the formation of the customs union? From which nation will these imports be purchased? c) Will the customs union be trade diverting or trade creating? Explain. d) Will there necessarily be gains from the formation of such a customs union? Show less

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