When imports from a higher-cost supplier within a customs union replace imports from a lower-cost supplier outside the custom union, there exists ?
Correct answer: B. trade diversion
- A. trade creation
- B. trade diversion
- C. dynamic welfare effects
- D. comprehensive welfare effects
Explanation
Replacing a cheaper outside supplier with a more expensive member supplier because of the customs union's common external tariff is trade diversion. Trade creation would shift purchases toward a lower-cost member supplier.
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