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An association N is implemented to promote trade between Country U and Country M as it eliminated most of the tariffs between them.
Explanation
Before association N, trade used to take place through tariffs between Country U and Country M. Tariffs raised the price of imports entering the domestic boundaries of the respective countries. After the abolition of tariffs under association N, imports and exports freely entered the markets in both countries.
With association N, the prices for goods paid by consumers of Country U to Country M reduced, consequent to which, the imports increased.
The consumers of Country U gain a surplus from the lowered prices, while the producers of these products in Country M gain from the increased amount of exports to Country U. On the other hand, the consumers in Country M lose due to large amounts of goods being exported and the producers in Country U producing goods also lose due to the fall in the prices with free trade.
Verified Answer
Due to association N, the price of imports falls leading to a rise in the quantity of goods imported in Country U.
The consumers of Country U and the producers of Country M are the gainers.
The consumers of Country M and the producers of Country U are the losers.
