The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4

-Preferential trade agreements have a beneficial trade-diversion effect when they reduce prices for traded goods and stimulate the volume of international trade.

Question

The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4
 
-Preferential trade agreements have a beneficial trade-diversion effect when they reduce prices for traded goods and stimulate the volume of international trade.

Quizplus · Accepted Answer

Preferential trade agreements can lead to trade diversion, which occurs when trade is redirected from a more efficient exporter to a less efficient one due to the preferences granted. This can actually reduce the overall efficiency of international trade, rather than stimulating it.

The Figure Below Shows the Demand (D) and Supply (S)