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18 December, 15:09

Suppose country X currently produces widgets. Then it establishes a regional trade agreement with country Y. Following the formation of the regional trade agreement, country X no longer produces widgets and now imports widgets from country Y. What has occurred?

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  1. 18 December, 15:32
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    Probably country Y had a comparative advantage over country X in the production of widgets, therefore trade resulted between the countries and it increased the gains for both countries.

    Country Y will probably continue to produce and export widgets and country X will be producing and possibly exporting some other good.
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