The cost of producing cars in Canada is $30,000, while the cost of producing cars in Mexico is $22,000, while in the U.S. it costs $18,000. Canada currently imposes a 50% tariff on all automobile imports. a) If Canada enters into a customs union with Mexico, will this lead to trade diversion or trade creation? b) If the tariff rate was originally 100%, would Canada entering into a customs union with Mexico lead to trade diversion or trade creation? c) If the tariff rate was originally 100%, and the cost of producing cars in the U.S. was $12,000, would Canada entering into a customs union with Mexico lead to trade diversion or trade creation?
The cost of producing cars in Canada is $30,000, while the cost of producing cars in Mexico is $22,000, while in the U.S. it costs $18,000. Canada currently imposes a 50% tariff on all automobile imports. a) If Canada enters into a customs union with Mexico, will this lead to trade diversion or trade creation? b) If the tariff rate was originally 100%, would Canada entering into a customs union with Mexico lead to trade diversion or trade creation? c) If the tariff rate was originally 100%, and the cost of producing cars in the U.S. was $12,000, would Canada entering into a customs union with Mexico lead to trade diversion or trade creation?
Chapter12: The Partial Equilibrium Competitive Model
Section: Chapter Questions
Problem 12.8P
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Transcribed Image Text:The cost of producing cars in Canada is $30,000, while the cost of producing cars in Mexico is $22,000, while
in the U.S. it costs $18,000. Canada currently imposes a 50% tariff on all automobile imports.
a) If Canada enters into a customs union with Mexico, will this lead to trade diversion or trade creation?
b) If the tariff rate was originally 100%, would Canada entering into a customs union with Mexico lead to
trade diversion or trade creation?
c) If the tariff rate was originally 100%, and the cost of producing cars in the U.S. was $12,000, would
Canada entering into a customs union with Mexico lead to trade diversion or trade creation?
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