When products from a high-cost country within a customs union replace imports from a low-cost country that is not a member of the union, this is called:
A) trade creation.
B) trade diversion.
C) trade deflection.
D) trade development.

Question

Quizplus · Accepted Answer

When products from a high-cost country within a customs union replace imports from a low-cost country that is not a member of the union, this is known as trade diversion. In this situation, the customs union member country may end up paying more for the products than it would have if it continued to import from the low-cost non-union country, but it does so in order to benefit from the common market and free trade within the customs union.

When Products from a High-Cost Country Within a Customs Union