The country of Argonia and the country of Berylia imposed tariffs on imports from all countries. They set up a free trade area, removing all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Argonia now begins to import sugar from Berylia. Previously, Argonia was indigenously producing sugar at a higher cost. Thus, Argonia benefits from this transaction. This is known as:
A)trade creation
B)strategic pricing
C)synergy
D)trade diversion
E)protectionism

Question

Quizplus · Accepted Answer

Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within a free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts.

The Country of Argonia and the Country of Berylia Imposed