After the formation of a free trade area for its member countries, the United States found that its high-cost furniture producers in North Carolina were replaced by low-cost producers from another country within the free trade area. This is an example of
A) value creation.
B) strategic pricing.
C) trade creation.
D) trade diversion.
E) economic exposure.

Question

Quizplus · Accepted Answer

Trade creation occurs when the formation of a free trade area leads to the replacement of high-cost domestic producers with lower-cost producers from member countries, resulting in more efficient allocation of resources.

After the Formation of a Free Trade Area for Its