Suppose country X currently does not produce widgets.Instead,
It imports widgets from country Z.Then country X establishes a
Preferential trading agreement with country Y.Following the
Formation of the PTA, it imports widgets from country Y.What
Has occurred?
A)There is trade diversion and a welfare loss for country X.
B)There is trade creation and a welfare loss for country Y.
C)There is trade diversion and a welfare gain for country X.
D)There is trade creation and a welfare gain for country Y.

Question

Quizplus · Accepted Answer

Trade diversion occurs when a country shifts its import source from a more efficient producer (country Z) to a less efficient one (country Y) due to a preferential trading agreement, leading to a potential welfare loss for country X.

Suppose Country X Currently Does Not Produce Widgets.Instead