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Basic Question 5 of 6
After the UK joined the EU, some UK households switched their spending on car and home insurance away from a higher-priced UK supplier towards a French insurance company operating in the UK market. This is an example of trade ______
B. liberalization
C. diversion
A. creation
B. liberalization
C. diversion
User Contributed Comments 4
| User | Comment |
|---|---|
| ankurwa10 | Can someone please explain as to why it's not trade diversion? |
| Kevdharr | It isn't trade diversion because the UK supplier is higher priced (i.e. less efficient). Trade diversion would occur if the UK supplier was a more efficient one, but a trade agreement FORCED UK households to switch to a different supplier within the agreement. So they were being diverted away from a more efficient option due to a trade agreement. But in this case, they are being diverted away from a LESS efficient option. So it is trade CREATION because the trade agreement is providing them with easier access to a more efficient supplier. |
| khalifa92 | trade creation replacing domestic with members products trade diversion replacing non-membets products with members products. |
| Freddie33 | And now the opposite is happening with Brexit. Nice one UK |
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Learning Outcome Statements
explain motivations for and advantages of trading blocs, commonmarkets, and economic unions
CFA® 2025 Level I Curriculum, Volume 1, Module 6.