【正文】
imports from B and C. Products from B and C are $ and $. ? A imports from C of EF. ? A’s consumers pay $3. ? A’s gov’t collects $ for each unit of imports. A forms an FTA with B and eliminates the tariff. The consumer price declines to $2. Imports increase to GH, all from B. 4 Trade creation: A’s domestic price declines, consumption increases and production declines. Imports increase by GE and FH. Trade diversion: A now imports from B. The source of imports diverts from C (the world’s lowestcost producer) to B (the lowestcost member producer). As a result, A pays more for its imports. 5 Figure Regional trade liberalization 6 Welfare Anal