16. Table: Demand and Supply for Gloves Use the supplied table, which gives U.S.

Question

16. Table: Demand and Supply for Gloves Use the supplied table, which gives U.S. supply and demand for gloves, to answer the following question(s). Reference: Ref 11-2 (Table: Demand and Supply for Gloves) The United States can also import gloves from China at $4 per pair and from Mexico at $5 per pair. Currently, the United States imposes a specific tariff of $2 on Its glove imports. Suppose that the United States and Mexico form a free-trade area. How much trade in gloves is created? A) zero pairs of gloves B) six pairs of gloves C) two pairs of gloves D) four pairs of gloves

Explanation / Answer

I think the question asks for the additional trade created by the formation of the free-trade area.

C.

Before the free-trade area, the lowest price for glove import is $4+$2=$6 from China. Therefore US will supply 10 pairs domestically and import 14-10=4 pairs from China. After the free-trade area, the lowest price is $5 from Mexico. Therefore the US would supply 9 paris domestically and import 15-9=6 pairs. Hence 2 more pairs of trade is created.

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