When the formation of a free trade area results in the reduction of trade with nonmember nations in favor of member countries,____ occurs.
A) Trade devaluation
B) Trade revaluation
C) Trade creation
D) Trade diversion

Question

Quizplus · Accepted Answer

When a free trade area is formed, it often results in the reduction of trade with nonmember nations in favor of member countries. This is known as trade diversion, as trade that was previously conducted with nonmember nations is diverted towards member countries. This can be seen as a negative effect of free trade areas, as it can potentially harm the economies of nonmember nations.

When the Formation of a Free Trade Area Results in the Reduction