A dynamic welfare gain resulting from the formation of a customs union would be:
A)trade diversion
B)trade creation
C)diseconomies of scale
D)economies of scale

Question

Quizplus · Accepted Answer

Economies of scale refer to the cost savings that result from increased production due to a larger market size, which is a dynamic welfare gain resulting from the formation of a customs union. Trade diversion refers to the shift in trade from more efficient producers outside the customs union to less efficient producers inside the union, which is a negative effect on welfare. Trade creation refers to the increase in trade within the customs union, which can be a welfare gain. Diseconomies of scale refer to increased costs due to a firm becoming too large, which is not a dynamic welfare gain resulting from the formation of a customs union.

A Dynamic Welfare Gain Resulting from the Formation of a Customs