After the creation of a free trade area involving five nations, higher cost external fabric producers were replaced by lower-cost external fabric producers within the free trade area. 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 a free trade area leads to the replacement of higher-cost external producers with lower-cost producers within the area, resulting in more efficient resource allocation.

After the Creation of a Free Trade Area Involving Five