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The Potential for Trade Diversion Is Smaller When a Custom

question 163

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The potential for trade diversion is smaller when a custom union's external tariff is lower rather than higher.


Definitions:

Price Level

The averaged-out price for the total spectrum of goods and services in the economy.

Nominal Wage

The wage paid to workers stated in current money terms, without adjustment for inflation.

Real Wage

The purchasing power of an individual's income, accounting for inflation and reflecting how many goods and services can be bought.

Nominal Wages

Wages paid to employees not adjusted for changes in price level, representing the monetary value of earnings.

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