Trade Diversion and Trade Creation Quiz

What is the concept of trade diversion?

• Decrease in the cost of imports from outside the group

• Increase in the cost of imports from within the group

• Complete halt of all imports within the group

• Substitution of higher-cost imports from outside the group with lower-cost imports from within the group

What are the effects of trade diversion on domestic industries?

• Stagnation in technological advancement

• Increase in competitiveness and market share

• Rise in consumer demand

• Decrease in competitiveness and market share

What is the impact of trade creation on domestic industries?

• Trade creation can benefit domestic industries by increasing competition and access to cheaper goods.

• Trade creation causes domestic industries to become less competitive

• Trade creation leads to higher prices for domestic industries

• Trade creation has no impact on domestic industries

Define trade creation.

• Formation of a single market leading to the reduction of trade

• Imposition of tariffs leading to the reduction of trade

• Formation of a customs union leading to the creation of trade

• Imposition of trade barriers leading to the reduction of trade

How does trade diversion affect the economy of a country?

• It leads to lower prices and increased efficiency

• It can negatively impact the economy by leading to higher prices and reduced efficiency.

• It only affects specific industries, not the overall economy

• It has no impact on the economy

Explain the impact of trade creation on consumer welfare.

• Trade creation leads to lower prices for consumers, increasing consumer welfare.

• Trade creation leads to reduced availability of goods for consumers, decreasing consumer welfare.

• Trade creation has no impact on consumer welfare.

• Trade creation leads to higher prices for consumers, decreasing consumer welfare.

What are the potential drawbacks of trade diversion?

• Higher prices and reduced economic welfare

• No impact on prices or economic welfare

• Decreased competition and increased consumer choices

• Lower prices and increased economic welfare

Discuss the relationship between trade creation and economic integration.

• Trade creation occurs when economic integration leads to the destruction of new trade opportunities among member countries, resulting in decreased efficiency and higher prices.

• Trade creation occurs when economic integration has no impact on the creation of new trade opportunities among member countries, resulting in no change in efficiency and prices.

• Trade creation occurs when economic integration leads to the creation of new trade opportunities among member countries, resulting in decreased efficiency and higher prices.

• Trade creation occurs when economic integration leads to the creation of new trade opportunities among member countries, resulting in increased efficiency and lower prices.

How does trade diversion impact the competitiveness of domestic industries?

• Trade diversion can decrease the competitiveness of domestic industries.

• Trade diversion has no impact on the competitiveness of domestic industries.

• Trade diversion only impacts the competitiveness of international industries.

• Trade diversion increases the competitiveness of domestic industries.

Compare and contrast the effects of trade diversion and trade creation on international trade.

• Trade diversion occurs when a lower-cost external supplier is replaced by a higher-cost supplier within the free trade area, while trade creation occurs when a higher-cost domestic supplier is replaced by a lower-cost supplier within the free trade area.

• Trade diversion occurs when a higher-cost external supplier is replaced by a lower-cost supplier within the free trade area, while trade creation occurs when a lower-cost domestic supplier is replaced by a higher-cost supplier within the free trade area.

• Trade diversion occurs when a higher-cost external supplier is replaced by a higher-cost supplier within the free trade area, while trade creation occurs when a lower-cost domestic supplier is replaced by a lower-cost supplier within the free trade area.

• Trade diversion occurs when a lower-cost external supplier is replaced by a lower-cost supplier within the free trade area, while trade creation occurs when a higher-cost domestic supplier is replaced by a higher-cost supplier within the free trade area.