When free trade areas are set up the member countries trade with each other grows faster than their trade with other countries This is due to what economist call ?
Correct answer: C. trade creation and trade diversion
- A. trade diversion
- B. trade channeling
- C. trade creation and trade diversion
- D. trade creation
Explanation
Trade creation is the increase in trade among member countries after internal barriers are removed, while trade diversion shifts imports from efficient non-members to member countries. Since the question describes both stronger intra-member trade and a relative change in outside trade, option c is the broadest fit.
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