CAIE A-Level Economics 11.6.3 Trade Creation and Diversion

Practise using tariff and customs-union diagrams to calculate import changes, identify trade creation or diversion and judge whether integration produces a net welfare gain.

Exam points

calculate imports before and after tariff removal from domestic supply and demand quantities
identify consumption and production gains on a trade-creation diagram from labelled welfare areas
evaluate integration by comparing lower-cost trade creation with higher-cost trade diversion

[Maximum number: 1]

The diagram shows the effect of trade creation if a tariff is removed.

Figure for Question 11.6.3—Trade creation/diversion question 1 — CAIE A-Level Economics A2

Which areas show the total net gain to the domestic economy?

v, w, x and y

v, w and x only

w and x only

w and y only

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11.6.3—Trade creation/diversion question 1