Practice mode Regional Trading Arrangements

When does trade diversion take place?

Correct answer D. When economic integration shifts product origin from a lower-cost non-member country to a higher-cost member country

Explanation

Preferential tariffs inside a union can make a higher-cost partner's goods cheaper to import than those of an efficient outsider, so purchases switch to the less efficient source.

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When does trade diversion take place?

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When does trade diversion take place?

More Regional Trading Arrangements questions

What is it called when forming a regional trading group shifts trade away from non-member countries towards member countries?

What is it called when forming a regional trading group increases trade above the levels before the group existed?

Which of the following illustrates a positive, dynamic effect of economic integration?

For Country X joining a customs union, trade creation is more likely to outweigh trade diversion when its pre-union tariffs are ____ and the number of member countries is ____?

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For Country X joining a customs union, trade creation is more likely to outweigh trade diversion when its pre-union tariffs are and the number of member countries is ?