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 free-trade area with Chile. Calculate the gain arising from trade creation after the United States joins the free-trade area.
A. $800 billion
B. $550 million
C. $250 million
D. $50 million
Answer: D
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