The figure below shows the U.S. market for imported wine. For simplicity, we consider export supply curves to be flat. Chilean wine is available for $480 per barrel and French wine is available for $420 per barrel.
Suppose the United States has a tariff of $80 per barrel on imported wine. Then, the United States joins a trade bloc with Chile. Calculate the loss suffered by the United States arising from trade diversion.
A. $50 million
B. $600 million
C. $250 million
D. $800 million
Answer: B
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What will be an ideal response?