If country A forms a customs union with country B, then

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Countries A and B may benefit from the customs union if substantial economies of scale exist in some of their industries. This is because the customs union allows for the free movement of goods between the two countries, which can result in increased production and lower costs for industries that can take advantage of economies of scale. However, the other choices are incorrect. Choice A is incorrect because once a customs union is formed, tariffs on goods traded between the two countries are eliminated. Choice B is incorrect because "trade creation" refers to the creation of new trade that replaces higher cost imports with lower cost imports, which may or may not occur as a result of a customs union. Choice C is incorrect because while there may be some benefits from increased trade between the two countries, the welfare of the countries is not necessarily enhanced simply by forming a customs union.

If Country a Forms a Customs Union with Country B