this is my homework for the Bob Hine course on "the Political economy of the European integration" at the College of Europe. the views expressed are the full responsibility of the author alone and do not engage the College of Europe. les éléments contenus dans cette présentation n'engagent que son auteur et ne peuvent en aucune façon etre attribués au College d'Europe

1. Homework on B.Hine course Anna Dekalchuk October, 17th Customs Union: trade creation and trade diversion home supply demand price P3 Sw + tariff v x y w Sp P2 v1 w1 x1 y1 Sw P1 O A C quantity D B

2. (P3) OA – home production OB – home demand AB – import (wherever) (P3) producers’ surplus: +v+v1+k (blue triangle) home supply demand price P3 Sw + tariff v x y w Sp P2 v1 w1 x1 y1 Sw P1 k O A C quantity D B

3. (P2) OC – home production OD – home demand CD – import (partner) (P2) producers’ surplus: +v1+k (blue triangle) home supply demand price (P2) producers’ surplus: loss of -v (pink trapezium) P3 Sw + tariff v x y w Sp P2 v1 w1 x1 y1 Sw P1 k O A C quantity D B

4. (P3) OA – home production OB – home demand AB – import (wherever) (P3) consumers’ surplus: +r (blue triangle) home supply demand price r P3 Sw + tariff v x y w Sp P2 v1 w1 x1 y1 Sw P1 O A C quantity D B

5. (P2) OC – home production OD – home demand CD – import (partner) (P2) consumers’ surplus: +r+v+w+x+y (blue&pink triangle) home supply demand price r (P2) consumers’ surplus: gain to +v+w+x+y (pink trapezium) P3 Sw + tariff v x y w Sp P2 v1 w1 x1 y1 Sw P1 O A C quantity D B

6. (P3) OA – home production OB – home demand AB – import (wherever) (P3) imports (wherever): imports are AB world receives P1 = t (yellow rectangle) home supply demand price P3 Sw + tariff (P3) tariff revenue: P1P3 x AB = +x+x1 (green rectangle) v x y w Sp P2 v1 w1 x1 y1 Sw P1 t O A C quantity D B

7. (P3) OA – home production OB – home demand AB – import (wherever) (P2) OC – home production OD – home demand CD – import (partner) home supply demand price (P2) imports (partner): imports are CD partner receives P2 (yellow rectangle) P3 Sw + tariff v x y w Sp P2 v1 w1 x1 y1 Sw P1 (P2) tariff revenue: 0 in comp.to P3: -x-x1 BUT: h.producers produce less OA-CA = OC BUT: consumption increases OB+BD O A C quantity D B

8. net welfare effect of CU (the Hicks-Kaldor compensation principle) (P2) producers’ surplus: -v home supply demand price (P2) consumers’ surplus: +v+w+x+y (P2) Taxpayer revenue: -x-x1 Net: +w+y-x1 P3 Sw + tariff v x y w Sp P2 v1 w1 y1 x1 Sw P1 O A C quantity D B

9. TC: light violet trapezium (2 parts) TD: light pink square home supply demand price Net: +w+y-x1 P3 Sw + tariff v x y w Sp P2 y w v1 w1 y1 x1 Sw P1 x1 Trade creation-diversion ration: O A C quantity D B