Trade creation takes place when ?
Correct answer: C. economic integration results in a movement in product origin to a lower-cost member country
- A. a country moves from autarky to free trade
- B. a movement to a customs union reduces the cost of trade through standardization
- C. economic integration results in a movement in product origin to a lower-cost member country
- D. economic integration results in a shift in product origin from a lower cost nonmember country to a member country having higher costs
Explanation
Trade creation occurs when integration shifts production or imports from a higher-cost domestic source to a lower-cost member country. Option d describes trade diversion because it replaces a lower-cost nonmember supplier with a higher-cost member supplier.
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