In Considering "Trade Creation" and "Trade Diversion" in the Formation

question 20

Multiple Choice

In considering "trade creation" and "trade diversion" in the formation of a customs union Between countries and whether the customs union enhances welfare in a home country Joining the union, two general conclusions that seem valid are that the customs union is Less likely to enhance welfare, other things equal, (i) if the union contains a __________ Number of countries and (ii) if costs of production in the partner countries in the case of Trade diversion differ __________ from costs of production in the outside world (the non-
Member countries) .

• A) large rather than a small; greatly
• B) large rather than small; only slightly
• C) small rather than a large; greatly
• D) small rather than a large; only slightly

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Definitions:

Minimization

The process or strategy of reducing or keeping to a minimum the size, amount, or degree of something, especially costs or liabilities.

Product Mix

The total range of products or services offered by a company to its customers.

Increasing-Cost Industry

An industry in which the costs of production increase as the industry grows and decreases as it contracts.

Resource Prices

The costs associated with acquiring inputs used in the production process, such as labor, materials, and capital.