Country A and Country B create a free-trade area. Before the creation of the free-trade area, Country A imported 1 million TVs from the world market at a cost of $500 per TV and added a tariff of $30 per TV. It costs $110 to produce a similar TV in Country B.
a. Once the free-trade area is established, what will be the cost to Country A of the TVs diverted from Country B?
b. How much extra imports would have to be generated in Country A to offset the trade-diversion cost of the free-trade area?