As a result of the formation of a free trade area between six member countries in the Pacific Rim,the member country of Rimho found that its lower-cost external suppliers were replaced by higher-cost suppliers within the free trade area.This is an example of
A)trade creation.
B)strategic pricing.
C)synergy.
D)trade diversion.
E)protectionism.

Question

Quizplus · Accepted Answer

This situation is an example of trade diversion, which occurs when lower-cost external suppliers are replaced by higher-cost suppliers within a free trade area. This is because tariffs and trade barriers have been removed between member countries, making it more economically viable for higher-cost suppliers within the free trade area to compete.

As a Result of the Formation of a Free Trade