Trade diversion reduces worldwide efficiency, because:
a. production is diverted to the country with the comparative advantage.
b. production is diverted from the country with the comparative advantage.
c. unnecessary trade restrictions are created in the economies.
d. consumption is diverted to the country having inadequate demand.
e. the cost of transshipment of the goods increases thus raising their prices in the world market.
Question 2
In 1992 the EEC was replaced by the EU with an agreement to:
a. reduce trade barriers among the member countries.
b. reduce trade barriers against nonmember countries.
c. mutually restrict imports from nonmember countries.
d. create a single market for goods and services in western Europe.
e. enable the countries of Western Europe to emerge as major world powers.
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Flexible exchange rates are supposed to prevent long-term trade deficits.