_____________ occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area.
A) Trade diversion
B) Trade qualification
C) Trade synergy
D) Trade creation
E) Trade diversification

Question

Quizplus · Accepted Answer

Trade diversion occurs when a free trade agreement results in the replacement of lower-cost external suppliers with higher-cost suppliers within the free trade area. This can happen when tariffs or other trade barriers are established between the free trade area and non-member countries, making it more expensive to import goods from those countries. As a result, producers within the free trade area may switch to suppliers within the area, even if those suppliers are more expensive, in order to avoid the higher costs of importing from outside the area.

_____________ Occurs When Lower-Cost External Suppliers Are Replaced by Higher-Cost