Because it is difficult to negotiate multilateral trade agreements, some economists argue that preferential trade agreements are always beneficial since they represent a movement toward freer trade, which is better than no movement at all. Is this argument always correct?

a. Yes; any movement toward freer trade is better than no movement at all.
b. No; some preferential trade agreements may have higher trade diversion costs than trade creation gains.
c. Yes; all preferential trade agreements have higher trade creation gains than trade diversion losses.
d. No; all preferential trade agreements have higher trade diversion losses than trade creation gains.

Ans: b. No; some preferential trade agreements may have higher trade diversion costs than trade creation gains.