An Example of How Trade Diversion Results in a Suboptimal

question 30

Multiple Choice

An example of how trade diversion results in a suboptimal situation is auto parts trade between Mexico and the United States. After NAFTA:

• A) Mexico decreased its sales of auto parts to the United States.
• B) the United States purchased more auto parts from Mexico because of the elimination of tariffs and reduced purchases from East Asia, which was the lowest-cost producer.
• C) the United States brought a complaint against Mexico for low-quality auto parts.
• D) the United States purchased fewer auto parts from Mexico because of the elimination of tariffs and increased purchases from East Asia, which was the lowest-cost producer.

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Definitions:

Biomass Fuels

Renewable energy derived from organic materials such as wood, waste, and alcohol fuels used for generating electricity or producing heat.

R-value

A measure of thermal resistance, indicating the effectiveness of insulation materials in preventing heat transfer.

Canadian Government

The federal administration of Canada which operates under a parliamentary system within a constitutional monarchy.

Kilometres Per Litre

A measure of a vehicle's fuel efficiency, indicating how many kilometres the vehicle can travel on one litre of fuel.