Assume that the formation of a customs union turns out to include the lowest-cost world producer of the product in question.Which effect could not occur for the participating countries?
A) Trade creation-production effect
B) Trade creation-consumption effect
C) Trade diversion
D) Scale economies and competition

Question

Quizplus · Accepted Answer

Trade diversion could not occur because the customs union includes the lowest-cost world producer, meaning there is no shift from a more efficient external producer to a less efficient member producer.

Assume That the Formation of a Customs Union Turns Out