Country A and Country B entered into a free trade agreement recently. After this, Country A starts importing heavy machinery from Country B. Country A used to previously import such machinery at lower rates from another country. Which of the following has occurred in this scenario?

Question

Quizplus · Accepted Answer

In this scenario, Country A has diverted its trade from its previous supplier to Country B due to the free trade agreement, even though it is importing the same goods at higher rates. This is an example of trade diversion.

Country a and Country B Entered into a Free Trade