ibhl-2 BW 020

IBHL-2 BW 020

1.     Illustrate and explain trade creation and trade diversion

Trade creation- when a country enters a customs union and production switches from a high cost to a low cost proudcer there iss an increase in efficiency and consumer surplus

2.     Occurs when the entry of a country into a custom union leads to the production of a good/ service transferring from a low cost to a high cost to a high cost producer