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After the formation of BERPHO, a free trade area for its member countries, Nuntica found that...

After the formation of BERPHO, a free trade area for its member countries, Nuntica found that its high-cost domestic producers were replaced by low-cost producers within the free trade area. This is an example of

trade diversion.

trade creation.

economic exposure.

strategic pricing.

value creation.
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Answer #1

The correct answer is Option (B) Trade Creation

Explanation - Trade Creation is used in international economics to describe a scenario where trade flows are potentially redirected due to the formation of a free trade zone. In other words, it is an increase in economic welfare that is caused as a result of decline in tariff, among other barriers, leading to lower prices. Consumers can therefore purchase goods by importing from producers that have a low cost within the free trade area.

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