Suppose that Mexico and Canada form a free trade area.The Mexicans then decrease refrigerator manufacturing and increase imports of refrigerators from Canada, while the Canadians decrease auto manufacturing and import more autos from Mexico.This is an example of trade creation.

Question

Quizplus · Accepted Answer

Trade creation occurs when a free trade area leads to increased trade between member countries, often through a shift in production patterns in favor of more efficient producers within the area. The scenario described in the question represents a shift in production patterns and increased trade between Mexico and Canada, which is an example of trade creation.

Suppose That Mexico and Canada Form a Free Trade Area