Question 29
[Maximum number: 1]
The diagram shows the effect of trade creation if a tariff is removed.
Which areas show the total net gain to the domestic economy?
A
v, w, x and y
B
v, w and x only
C
w and x only
D
w and y only
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.
How this is tested
- 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