When the formation of a free trade area results in the reduction of trade with nonmember nations in favor of member countries, _____________ occurs.
A) trade devaluation
B) trade revaluation
C) trade creation
D) trade diversion

Question

Quizplus · Accepted Answer

When the formation of a free trade area results in the reduction of trade with nonmember nations in favor of member countries, it is known as trade diversion. This occurs because member countries may start trading with each other instead of other nonmember countries, leading to a diversion of trade away from the latter.

When the Formation of a Free Trade Area Results in the Reduction