Trade creation occurs when lower-cost external suppliers are replaced

QUESTION

Trade creation occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area.

Indicate whether the statement is true or false.

ANSWER

FALSE
Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. It may also occur when higher-cost external producers are replaced by lower-cost external producers within the free trade area.