Trade diversion takes place when ?
Correct answer: D. economic integration results in a shift in product origin from a lower-cost, nonmember country to a member country having higher costs
- A. a country moves from autarky to free trade
- B. a movement to a customs union reduces the costs of trade through standardization economic integration results in a
- 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 diversion occurs when integration shifts imports from a lower-cost nonmember supplier to a higher-cost member supplier because the member's goods enter duty-free. This is precisely the situation described in option d.
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