Suppose country X currently produces widgets. Then it establishes a regional trade agreement with country Y. Following the formation of the regional trade agreement, country X no longer produces widgets and now imports widgets from country Y. What has occurred?
A) There is trade diversion and a welfare gain for both country X and country Y.
B) There is trade diversion, a welfare gain for country Y, and a welfare loss for country X.
C) There is trade creation and a welfare gain for both country X and country Y.
D) There is trade creation, a welfare gain for country Y, and a welfare loss for country X.

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The Answer of Suppose country X currently produces widgets. Then it establishes a regional trade agreement with country Y. Following the formation of the regional trade agreement, country X no longer produces widgets and now imports widgets from country Y. What has occurred?
A) There is trade diversion and a welfare gain for both country X and country Y.
B) There is trade diversion, a welfare gain for country Y, and a welfare loss for country X.
C) There is trade creation and a welfare gain for both country X and country Y.
D) There is trade creation, a welfare gain for country Y, and a welfare loss for country X.

Suppose Country X Currently Produces Widgets