By joining the North American Free Trade Agreement, the United States, Canada, and Mexico would find their short-run welfare decreasing because of the

Question

Quizplus · Accepted Answer

The trade diversion effect refers to a situation where a customs union or free trade agreement leads to trade being diverted from a more efficient external supplier to a less efficient internal supplier. In the case of Greece, joining a customs union with Germany and France would likely lead to trade diversion, as Greece would need to import from within the union even if it could obtain calculators at a lower cost from suppliers outside the union. Similarly, joining NAFTA could lead to trade diversion for the member countries, as they would be obligated to trade with each other even if doing so is less efficient than trading with non-member countries. This would lead to a decrease in short-run welfare. Therefore, the best choice is D.

By Joining the North American Free Trade Agreement, the United