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Trade diversion refers to: 1. the volume of trade is reduced 2. imports are substituted for...

Trade diversion refers to: 1. the volume of trade is reduced 2. imports are substituted for domestic production 3. the promotion of tourism 4. exports are substituted for imports 5. imports are shifted from the most efficient producer to a less efficient producer

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Answer #1

Answer - imports are shifted from more effecient producer to less efficient producer.

Reason - Trade diversion occurs when tariff agreements cause imports to shift from low oppertunity cost countries to higher opportunity cost countries or in other word a shift from more efficient producer to less efficient producer. It concentrates production in countries with higher opportunity cost.

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