Customs Union Theory Reasons That the Formation of a Customs

question 116

Multiple Choice

Customs union theory reasons that the formation of a customs union will decrease members' real welfare when the:

• A) Trade diversion effect exceeds the trade creation effect
• B) Trade production effect exceeds the trade consumption effect
• C) Trade consumption effect exceeds the trade production effect
• D) Trade creation effect exceeds the trade diversion effect

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Definitions:

Replacement Cost

The cost to replace an asset with another of similar function and quality in its current condition.

Historical Cost

The original monetary value of an asset or expense as recorded at the time of acquisition or incurrence, without adjusting for inflation or changes in value.

Fair Value

An estimate of the price at which an asset or liability could be traded in a fair transaction between willing parties, not involving forced sale or liquidation.

Weighted Average

A mathematical calculation that takes into account both the magnitude and the significance of each number in a set to find an average value weighted by importance or size.