Suppose that canada has domestic firms that could

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67. Suppose that Canada has domestic firms that could supply its entire market for radios at a price of $50, while U.S. firms could supply radios at $40 and Mexico at $30. Suppose that Canada initially has a 50 percent tariff on imports of radios and then forms a free trade area with Mexico As a result, Canada realizes: a. Trade creation, no trade diversion, and overall welfare gains b. Trade creation, no trade diversion, and overall welfare losses c. Trade diversion, no trade creation, and potential overall welfare losses d. Trade diversion, trade creation, and potential overall welfare gains 68. As of 2002, members of the European Monetary Union agreed to replace their currencies with the: 69. The formation of the European Monetary Union is expected to entail benefits for member countries which include all of the following except : 70. According to the theory of optimum currency areas, a currency area has the least chance for success when: 71. A main disadvantage of the European Monetary Union is that: a. Each member country loses the use of monetary policy as to tool to combat recession b. There is a high degree of labor mobility among the member countries c. Prices are highly flexible in response to changing economic conditions d. Wages are highly flexible in response to changing economic conditions 12
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