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

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This scenario is an example of trade creation, as the free trade agreement between Argonia and Berylia allows for the import of sugar at a lower cost, creating benefits for Argonia. Trade diversion would occur if Argonia stopped importing sugar from a more efficient producer outside of the free trade agreement and instead imported it from Berylia, regardless of cost. Strategic pricing and synergy are unrelated concepts, and protectionism would involve the imposition of trade barriers rather than the removal of them.

The Country of Argonia and the Country of Berylia Imposed