Presentation

This Presentation takes you step-by-step through the static, partial equilibrium analysis of the welfare effects for a small country, forming a small customs union with another country.

The analysis is partial equilibrium because we will only look at the effects of the customs union in a single market, rather than allowing for interactions and repercussions in other related markets.

The analysis is static because we look only at the effects of the customs union at a single point in time and do not consider changes that might occur as a result of a customs union over time.

Our assumption of 'smallness' means that changes in production, consumption and prices that might occur as a result of the customs union, in either the country or the customs union, do not affect world prices. In other words, both the country and the customs union are price takers in world markets.