Question

Gear Electronics used to buy all of its component parts from a local plant in Cleveland, Ohio, but this year it has decided to buy the parts from a lower-cost facility located in Tijuana, Mexico. This is an example of __________.

Answer 1

Answer: Trade creation.

Explanation:

The situation described in question is an example of trade creation, where two or more countries can decide to form a trade area where little or no import taxes are paid when trade is carried out, therefore products can be bought from cheaper areas and supplied to consumers at a lower cost.