The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is PW. Assume that all cotton towels are identical.
FIGURE 34- 3
-The concept of "trade diversion" refers to
A) inefficient trade that typically follows the reduction of selected trade barriers.
B) an increase in economic efficiency that comes with a newly established trading relationship.
C) something that is predicted by theory, but has never been observed in practice.
D) trade that is shifted between members of a customs union.
E) the main benefit of creating a free- trade area.
Correct Answer:
Verified
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