In terms of static economic analysis,if a customs union results in a small amount of trade creation relative to trade diversion,world welfare
A) increases
B) decreases
C) does not change

Question

Quizplus · Accepted Answer

When the trade creation resulting from the customs union is small compared to the trade diversion, it means that the member countries are trading more with each other and less with countries outside the union. This can result in higher prices for certain goods and reduced competition, leading to decreased world welfare. Therefore, the correct choice is B.

In Terms of Static Economic Analysis,if a Customs Union Results