Multiple Choice
(Table: U.S. Demand for and Supply of Widgets) The United States can import widgets from China at $4 each and from Mexico at $5 each. The United States imposes a tariff of $2 on each of its widget imports. Suppose instead that the United States negotiated a free-trade agreement with China. Will the United States be better off or worse off as a result of its trade in widgets in the free-trade area with China? 
A) It is better off because there are no trade diversion losses.
B) It is worse off because there are no trade creation gains.
C) It is worse off because trade creation gains exceed trade diversion losses.
D) It is better off because trade diversion gains exceed trade creation losses.
Correct Answer:
Verified
Correct Answer:
Verified
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