Question

Trade diversion happens when... Instead of importing from most efficient country, a Country import goods from nation within a Preferential Trade Agreement, with higher production costs Instead of importing from most efficient country within a Preferential Trade Agreement, a Country imports from the World's most efficient producer, violating the agreement A Country imports the same good from several different Countries, instead of focusing on one or few Countries alone A Country exports the same good from several different Countries, instead of focusing on one or few Countries alone

Answer 1

Answer: Option (A) is correct.

Explanation:

There are two terms in international economics; Trade creation and Trade diversion.

When some countries engaged in a particular economic integration then they have to agree upon various tariff rates. Trade diversion means that an economic integration or a free trade area diverts the trade from the most productive or efficient producer outside the economic integration towards the less productive or efficient producer inside the free trade area.

Types of economic integration:

(1) Preferential trade agreement

(2) Free trade agreement

(3) Custom unions

(4) Common Market

(5) Economic Union