Assignment 6

Following figure depicts the supply and demand schedules of calculators for Greece,
a “small” country that is unable to affect the world price. Greece’s supply and
demand schedules of calculators are respectively depicted by S G and DG. Assume
that Greece imports calculators from either Germany or France. Suppose Germany
is the world’s low-cost producer who can supply calculators to Greece at $20 per
unit, while France can supply calculators at $30 per unit. Answer the next three
questions on the basis of this information.

a. With free trade, Greek will import from which country? Calculate the import quantity
and corresponding Consumer Surplus (CS) and Producer Surplus (PS).
b. If Greek applies a specific tariff of 20 then Greek will import from which country?
Calculate the import quantity and corresponding CS and PS.
c. In the case of b, suppose Greece forms a customs union with France only, then Greek
will import from which country? Calculate the import quantity and corresponding CS and
PS. Also estimate the trade creation and trade diversion effect in this case.

Provide a detailed explanation for each of your solutions, discussion, and conclusion.
Notes: Please use any tool that you feel comfortable with (i.e excel and word, or PPT) to
complete the graph. Unclear handwriting will negatively influence the quality of your
diagram. Make sure that you provide sufficient notes for the diagram.