In the diagram in Question #8 above, suppose that country A, from this initial situation Where its tariff is applied to both countries B and C, now forms a customs union with Country B. With this customs union in place, imports into country A are distance __________.

Question

Quizplus · Accepted Answer

When a customs union is formed between countries A and B, imports into country A from country B will no longer face tariffs, potentially increasing imports from B. However, not all increased imports necessarily constitute trade diversion from country C, the non-customs union country. Some of the increase could be due to the natural comparative advantage of country B over C, or simply an increase in demand within country A that cannot be met domestically. Therefore, while there may be trade diversion from country C to country B, it's not accurate to say all of the increase in imports from B constitutes trade diversion.

In the Diagram in Question #8 Above, Suppose That Country