Deck 25: Trading Blocs

Question 1

A customs union is

A) the union of countries that have a common trade policy of protectionist measures against other countries.
B) a group of countries that trade freely with each other but have their own individual trade policies with non- member countries.
C) a group of countries that trade freely with each other and have a common policy towards trade restrictions with non- member countries.
D) a group of countries that trade freely with one another, have a common policy concerning trade with non- member countries and a common tax and trade regulation system.

Answer 1

a group of countries that trade freely with each other and have a common policy towards trade restrictions with non- member countries.

Question 2

Which of the following is unlikely to be an advantage gained from joining a customs union?

A) External economies of scale
B) Better terms of trade for the country
C) Lower costs of administering economic policy
D) Internal economies of scale

Answer 2

Lower costs of administering economic policy

Question 3

Which of the following is unlikely to be an effect of a customs union?

A) Trade creation
B) Trade diversion
C) Increased competition
D) Demand curves becoming more inelastic

Answer 3

Demand curves becoming more inelastic

Question 4

A customs union is more likely to lead to trade diversion rather than trade creation when the union's external tariff is very_______ and there is ________between goods produced within and outside the union.

A) high; no cost difference
B) low; a substantial cost difference
C) high; a substantial cost difference
D) low; no cost difference

Question 5

What is trade diversion?

A) Where trade is diverted towards goods that are produced inside the custom union at a lower cost
B) Where trade is diverted towards goods where a country holds a comparative advantage in production
C) Where trade is diverted away from goods that are produced outside the custom union at a lower cost
D) Where trade is diverted towards goods that are produced outside the custom union at a lower cost

Question 6

Which of the following defines a situation of trade diversion resulting from the formation of a customs union?

A) Production is diverted away from tradeable goods to those which are not traded.
B) Trade between non- union members is diverted to trade with union members.
C) Production is diverted from a lower cost producer outside the union to a higher cost producer within the union.
D) Production is diverted away from trade within the union to trade with non- union members.
E) Production is diverted from a higher cost producer outside the union to a lower cost producer within the union.

Question 7

Assume that the most efficient producer of butter is New Zealand. Before joining the EEC/EU, the UK imposed a tariff on all imports of butter. After joining the EEC/EU, European- made butter was cheaper than that from New Zealand. Therefore, the customs union would cause

A) trade reduction.
B) trade creation.
C) trade division.
D) trade diversion.

Question 8

Assume that, before it joined the EU, UK consumers had to pay a tariff on imported Fiat cars. The UK's main small car at the time was the Mini. Italy had a comparative advantage in the production of small cars. On joining the EU, the UK car market would have seen

A) trade reduction.
B) trade diversion.
C) trade division.
D) trade creation.

Question 9

Which is the largest zone of preferential trading?

A) The European Community
B) The Organisation of Petroleum Exporting Countries
C) The US, Canada and Mexico
D) The North Atlantic Treaty Organisation

Question 10

The purpose of the North American Free Trade Association (NAFTA) is to

A) speed up the transfer of technology between the US, Canada and Mexico.
B) reduce trade barriers between the US, Canada and Mexico.
C) reduce the amount the US imports from Canada and Mexico.
D) reduce the US's dependency on imported oil.

Question 11

Which of the following is the least likely to be the result of the formation of a trading bloc?

A) Larger markets for domestic companies
B) Greater specialisation among member countries
C) More scope for member countries to develop economies of scale
D) New export markets for less developed countries

Question 12

NAFTA is a_______, whereas the EU is a _______________.

A) free trade area; single market
B) free trade area; customs union
C) common market; single market
D) common market; customs union

Question 13

The NAFTA arrangement between the US and Canada should have had which of the following effects compared with the pre- agreement situation?

A) The price of Canadian goods sold in the US increased.
B) The amount that the US exports to Canada and the amount that the US imports from Canada increased.
C) The price of US goods sold in Canada increased.
D) All of the above

Question 14

Which of the following is not true of ASEAN?

A) Virtually all tariffs between the six original members have been removed.
B) The six original members were Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand.
C) ASEAN is now a completely free trade area.
D) A common market is planned to be established by 2020 within ASEAN.

Question 15

In which year were all tariffs between NAFTA members eliminated?

A) 2008
B) 2011
C) 2009
D) 2010

Question 16

In January 2013, how many countries were members of the European Union?

A) 12
B) 27
C) 15
D) 20

Question 17

Which country is a member of the European Free Trade Area?

A) Italy
B) Germany
C) Luxembourg
D) Switzerland

Question 18

The European Economic Area is a

A) common market.
B) single market.
C) customs union.
D) free trade area.

Question 19

Assume that, before it joined the EU, the UK had to pay a tariff on Granny Smith apples imported from France. The UK grows both Coxes apples and Granny Smith apples but it is France that has a comparative advantage in the latter. When the UK joined the EU, one would have expected to see the UK

A) increase its imports and reduce its production of Granny Smiths.
B) reduce its imports and increase its production of Granny Smiths.
C) increase its exports of Granny Smiths and reduce its imports of Coxes.
D) reduce its exports of Granny Smiths and increase its imports of Coxes.

Question 20

The act signed in 1992 to establish a true common market of countries in Europe was called the

A) European Union Act.
B) Single European Act.
C) European Community Act.
D) Single Market Act.

Question 21

Which of the following statements concerning the Single European Act is false?

A) It sought to remove all non- tariff barriers in the EC.
B) It did not force member countries to harmonise their tax systems.
C) It accepted the principle of mutual recognition.
D) It allowed governments to continue the practice of national procurement.

Question 22

Which of the following was not a prime aim of the EEC on its foundation?

A) To allow greater economies of scale to be gained in production and consumption
B) To avoid another war by uniting countries within Europe
C) To provide effective competition against the economic giant of the US
D) To bring a greater awareness of the different cultures of the member countries and to foster cultural and educational links between them

Question 23

With reference to the Single European Act, the principle of mutual recognition

A) concerned acceptance of the fact that each of the countries had their own identity and culture.
B) meant that firms and individuals could choose to obey the rules of the country that had the least restrictive ones in the Community on any particular issue.
C) stated that each member country should realise that every member had a right to decide on its own trade policies.
D) stated that there would be mutual benefits of open trade with one another.

Question 24

Which of the following will not be a consequence of completion of the internal market?

A) Increased employment
B) A rise in inflation
C) An improvement of the balance of payments
D) Good GDP growth

Question 25

The creation of a single market may lower average costs because of__________, but it may also cause______

A) increased monopoly power; rising prices
B) increased economies of scale; structural unemployment
C) decreasing economies of scale; declining exports
D) diseconomies of scale; rising fixed costs

Question 26

If increased economic integration causes more co- operation between firms, this could cause

A) more elastic demand curves.
B) greater oligopolistic collusion.
C) industry output to rise.
D) consumer surplus to rise.

Question 27

EU regional policy

A) provides grants to firms and government in relatively deprived regions.
B) provides grants to firms, households and government in relatively deprived regions.
C) lowers tax rates in relatively deprived regions.
D) A and B

Question 28

Within the EU, indirect tax (VAT)

A) is constant across member states.
B) varies substantially between member states.
C) is controlled by the EU commission.
D) is controlled by national governments but within small bounds set by the EU.

Question 29

Which of the following is not a main issue in the minds of members of the European Union?

A) Removal of tariffs
B) New membership
C) National sovereignty
D) Monetary union

Question 30

Which of the following is estimated to yield the greatest monetary benefit to the European Union when trade barriers are removed?

A) The reaping of economies of scale by industries
B) Removal of all industrial barriers
C) Cessation of national procurement policies by government
D) Removal of frontier formalities

Question 31

Which of the following is a barrier to trade, as viewed by the European Council?

A) Introduction of country- specific technical standards
B) Total transport cost being higher when long distances are involved
C) Language barriers
D) Consumers preferring locally produced products

Question 32

A common market is when countries operate together having free movement of labour and capital and similar trade laws.

Question 33

Trade creation is when countries are able to specialise in areas of comparative advantage.

Question 34

An adverse effect of a state entering a common market is the potential for increased regional disparities.

Question 35

A free trade area is where countries have no tariffs or quotas between themselves and have common external tariffs and quotas with non- members.

Question 36

Since the creation of NAFTA, many Asian businesses are using Mexico as their entry into the US market.

Question 37

NAFTA is not a common market.

Question 38

APEC (Asia- Pacific Economic Co- Operation Forum) is a free trade area of 17 countries, ranging from Australia to Japan.

Question 39

The ultimate goal of ASEAN is to combine the two currency areas and adopt a single currency for all member states.

Question 40

'Mutual recognition' is an EU principle which says that trade rules and regulations of any country apply throughout the EU. This has given some companies the right to choose which set of regulations they will obey.

Question 41

Increased competition between member states of the EU should lead to increases in consumer surplus.

Question 42

The EU's common agricultural policy controls the quality but not the price of agricultural products.

Question 43

There had been an ongoing banana war between the EU and the US.

Question 44

The nations that joined the EU in May 2007 have economic structures that are similar to those of existing members.

Question 45

The entry of new countries to the EU in 2004 and 2007 should allow more potential gains from the exploitation of comparative advantage.

Question 46

The existing members of the EU are likely to benefit more than the new entrants to the EU.

Question 47

What are some of the longer term advantages of a customs union?

Question 48

What are some of the possible disadvantages of a customs union?

Question 49

Explain the meaning of trade diversion that occurs under a customs union.

Question 50

What is the significance of NAFTA (North American Free Trade Agreement)?

Question 51

List two of the recent trade disputes between the US and the EU.

Question 52

Explain the EU principle of mutual recognition.

Question 53

Discuss some of the advantages of the completion of the single market in the EU.

Question 54

Discuss some of the disadvantages of the completion of the single market in the EU.

Question 55

Why may a single market cause adverse regional effects?

Question 56

Name as many of the EU member states as you can.