_______________ occurs when trade shifts to countries in the group at the expense of trade withcountries not in the group, even though the nonmember country might be more efficient in the absenceof trade barriers.

Question

Quizplus · Accepted Answer

Trade diversion occurs when a country enters a trade agreement with a group of countries and starts importing goods from these countries instead of from more efficient producers outside the group, due to the preferential treatment (like reduced tariffs) within the group. This can lead to a situation where goods are sourced from a less efficient producer within the group rather than from a more efficient producer outside the group, simply because of the trade barriers imposed on non-members.

_______________ Occurs When Trade Shifts to Countries in the Group