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 due to 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 due to the elimination of tariffs and increased purchases from East Asia, which was the lowest-cost producer.
Ans: b. the United States purchased more auto parts from Mexico due to the elimination of tariffs and reduced purchases from East Asia, which was the lowest-cost producer.
You might also like to view...
Externalities are consequences visited upon those individuals residing outside decision processes
Indicate whether the statement is true or false
Most goods can be classified as normal goods rather than inferior goods. The definition of a normal good suggests that:
A. The income elasticity of demand for the good is negative B. The price elasticity of demand for the good is negative C. The income elasticity for the good is greater than 0 D. The cross elasticity of demand for the good is positive