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The global context

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Question 3

Following the signing of the Southern Cross Free Trade Agreement (SCFTA) between Aurora and Borealis, Aurora eliminated its 15% tariff on imported wheat from Borealis. As a result, Aurora ceased its own high-cost domestic wheat production, replacing it with cheaper imports from Borealis. At the same time, Aurora stopped importing lower-cost wheat from non-member nation Zephyria, as Zephyria's wheat remains subject to the 15% tariff, making it artificially more expensive than Borealis' tariff-free wheat.

With reference to this scenario, distinguish between trade creation and trade diversion.

[2]

The global context Questions

  1. A Level
  2. /Economics
  3. /The global context