Describe the trade creation or trade diversion

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Reference no: EM13184568

Suppose that upon entering the European Union (EU), it is discovered that the cost of automobile production in Poland is €14,000 while it is €20,000 in Germany. Suppose that the EU, which has a customs union, has an X percent tariff on automobiles and that the costs of production are equal to Y (valued in euros) in Japan. Comment on whether the addition of Poland to the European Union would result in trade creation or trade diversion under the following scenarios:

a. X = 50% and Y = €10,000

b. X = 100% and Y = €10,000

c. X =100% and Y = €8,000

Reference no: EM13184568

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