2.

In this diagram, consumer surplus represents the amount a buyer can pay for the butter minus the
actual price he pays. The producer surplus is the price paid for the butter, minus the costs of
production. Equilibrium is very significant for trade, because a beneficial situation both for customers
and producers. Producers can sell all their products with the surplus, while many consumers find the
price for the product affordable.
3. When the country is opening for the international trade, the price in country adjusts to the world’s
one. If the world’s price is higher than the domestic one, it means that the consumer surplus is much
lower and producer surplus higher. At the beginning, this situation is not beneficial for home industry
and state prefers the import of this product. Important is to requalify and let them work in this part
of industry that gives profits.

4. Imposing the tariff would decrease the consumer surplus and increase the producer surplus. Less
people would be willing to buy beef, because the increasing price makes it less affordable and
demand will be smaller. Both sides will be suffering from the results of imposing tariff on beef –
British will import less of their product, because of tariff and smaller demand and in the MS it will be
a much more luxurious product.
5. I think that the member state would be better, when there would be signed Free Trade Area
agreement with UK, because it would cease all barriers for the trade and imposing tariffs would not
be necessary. The difference between Free trade area and Customs Union is that in CU there are
common tariffs from products from third countries, while in FTA there is on such a thing. The
advantage of FTA agreement for the UK would mean new markets and new possibilities, while the
argument against FTA agreement would be the support of domestic consumers.