Country X becomes part of a customs union with country Y and will abolish the tariff on imports of good M from country Y. In which circumstances will trade creation in country X be greatest?
- Aexisting size of country X’s tariff on imports of good M: large; price elasticity of demand for good M in country X: –0.8
- Bexisting size of country X’s tariff on imports of good M: large; price elasticity of demand for good M in country X: –1.4
- Cexisting size of country X’s tariff on imports of good M: small; price elasticity of demand for good M in country X: –0.8
- Dexisting size of country X’s tariff on imports of good M: small; price elasticity of demand for good M in country X: –1.4