- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 6. International Trade
- Subject 3. Trading Blocs, Common Markets, and Economic Unions
CFA Practice Question
Before Britain joined the EU, most lamb imports came from New Zealand, the cheapest lamb producer. However, when Britain joined the EU, the common external tariff made it more expensive to import lamb from New Zealand than from countries inside the union, and thus France became the majority exporter of lamb to the UK. This is an example of ______.
A. trade replacement
B. trade creation
C. trade diversion
Explanation: Trade was diverted from New Zealand and created between France and the UK.
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