Vela signs a free trade agreement with Orin. Pavo is not a member of the agreement. Producers in Orin and Pavo supply identical boxes of ceramic floor tiles to Vela. Importers in Vela choose the producer offering the lower tariff-inclusive price.
| Country supplying the tiles | Producer price per box | Tariff before the agreement | Tariff after the agreement |
|---|---|---|---|
| Orin | £24.00 | 25% | 0% |
| Pavo | £22.00 | 25% | 25% |
Calculate the price paid by an importer in Vela for one box of tiles from each country after the agreement. Show your workings.
Using your answers and the data, explain how the agreement is likely to change where Vela imports these tiles from.
85 exam-style questions on OCR GCSE Economics 4.1 Importance of international trade, covering 4.1.1 Why countries import and export and 4.1.2 Free trade agreements. Each one has a worked solution and a mark scheme showing where the marks go.