Trade creation minimized by low tariff and inelastic demand

Steps:

• Trade creation measures increased imports from tariff removal in a customs union.
• It rises with larger initial tariffs, as removal causes greater price drop and substitution.
• It also rises with higher demand elasticity, as consumers respond more to price changes.
• Minimize by combining small tariff (minimal price effect) and low elasticity (small quantity response).

Why C is correct:

• Small tariff limits price reduction benefit; elasticity of -0.4 (inelastic) yields least import volume increase per Viner's trade creation formula.

Why the others are wrong:

• A: Large tariff boosts creation despite moderate elasticity.
• B: Moderate elasticity (-0.8) amplifies small tariff's effect over C.
• D: High elasticity (-1.4) greatly expands imports from small tariff.

Final answer: C