The Economics of European Integration (Winter School 2020) Assignment 1 Explain the difference between trade deflection, trade creation and trade diversion. Which of these concepts are relevant to a...

The is a small task.There is no word limit and there is no standard answer to an open question.It belongs the European Economics Course.


The Economics of European Integration (Winter School 2020) Assignment 1 Explain the difference between trade deflection, trade creation and trade diversion. Which of these concepts are relevant to a free trade area and which are relevant to a customs union? On the diagram from Class 2 (below), how would you indicate the amount of trade that is created and the amount of trade that is diverted by offering preferential treatment to a partner that sells a good for more than the world price, Pw, but less than the (tariff-inclusive) domestic price, Pd? If you were using the above diagram to analyse the customs union in manufactured goods for the six countries that signed the Treaty of Rome in 1957, where would you draw the Pp line? Explain how your answer determines the relative magnitude of trade creation and trade diversion and estimation of the net welfare effects. The assignment on one side of a single sheet of paper is due at 2pm on Friday 10th. July - no extensions.