A customs union will increase the welfare of its members and the
Rest of the world if:
A)trade creation is greater than trade diversion.
B)trade creation is less than trade diversion.
C)trade creation is positive.
D)trade diversion is positive.

Question

Quizplus · Accepted Answer

A customs union is meant to eliminate barriers to trade among its members, creating trade creation. If trade creation is greater than trade diversion, then it means that the benefits of trade creation outweigh the costs of trade diversion. This would result in increased welfare for the members of the customs union as well as the rest of the world. Therefore, choice A is the correct answer.

A Customs Union Will Increase the Welfare of Its Members