A static welfare effect resulting from the formation of the European Union would be
A) economies of scale.
B) trade diversion.
C) investment incentives.
D) increased competition.

Question

Quizplus · Accepted Answer

The question is asking for a welfare effect resulting from the formation of the European Union. Economies of scale, investment incentives, and increased competition may be outcomes of the EU, but they do not directly relate to welfare effects. Trade diversion refers to the shifting of trade flows from more efficient suppliers outside the union to less efficient suppliers within the union, which results in a static welfare loss. Therefore, the best choice is B.

A Static Welfare Effect Resulting from the Formation of the European