A customs union will be beneficial to world welfare if the amount of trade creation resulting from its formation is larger than the amount of trade diversion.

Question

Quizplus · Accepted Answer

A customs union can enhance world welfare if it leads to more trade creation, which means replacing higher-cost domestic production with lower-cost imports from member countries, than trade diversion, which is the replacement of lower-cost world imports with higher-cost imports from the union members.

A Customs Union Will Be Beneficial to World Welfare If