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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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