In general, other things equal, trade creation is more likely to outweigh trade diversion for a home country forming a customs union with partner countries (i) if the total number of countries forming the union is __________, and (ii) if the level of tariffs in the home country prior to the formation of the union is __________.

Question

Quizplus · Accepted Answer

Trade creation is more likely to outweigh trade diversion when the customs union includes a large number of countries, as this increases the variety and competition of goods within the union, and when the home country's tariffs are high prior to the union, as the removal of these tariffs leads to significant increases in trade efficiency and reductions in prices for consumers.

In General, Other Things Equal, Trade Creation Is More Likely