Trade creation will more likely outweigh trade diversion for Country X that forms a customs union if the level of tariffs in Country X prior to the customs union is ________ and the total number of countries forming the customs union is _________?
Correct answer: A. relatively high; relatively large
- A. relatively high; relatively large
- B. relatively high; relatively small
- C. relatively low ; relatively large
- D. relatively low ; relatively small
Explanation
A high initial tariff creates greater scope for trade creation when internal tariffs are removed, while a larger customs union offers more potential partners and suppliers. Thus, high prior tariffs and many member countries make trade creation more likely to outweigh diversion.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
Practise Microeconomics
1,742 free Microeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Microeconomics questions
Criticisms against the North American Free Trade Agreement include all of the following except ?
Profit-maximizing firms want to maximize the difference between ?
Which of the following is most likely to be a variable cost for a firm ?
A positive, dynamic effect of economic integration is illustrated by ?
_________ is said to exist when the formation of a regional trading group leads to an expansion of trade above pregroup levels ?
________ is said to exist when the formation of a regional trading group leads to the reduction of trade with nonmember countries in favor of member countries ?