Deck 7: Economic Integration

Question 1

A ____________________ is the form of economic integration wherein all barriers are removed on trade among members,but each nation retains its own barriers to trade with nonmembers.

A)preferential trade arrangements
B)customs union
C)common market
D)free trade area

Answer 1

D

Question 2

Which of the following represents the loosest form of economic integration?

A)Preferential trade arrangement
B)Customs union
C)Common market
D)Free trade area

Answer 2

A

Question 3

With free trade,the supply curve faced by a small importing country will be:

A)perfectly inelastic
B)perfectly elastic
C)upward sloping
D)downward sloping

Answer 3

B

Question 4

Trade diversion will ______________ for the domestic country.

A)decrease welfare
B)increase welfare
C)have no effect on welfare
D)initially increase,then decrease welfare

Question 5

A(n)________________ is a group of nations with common monetary and fiscal policies in addition to the characteristics of a common market.

A)Preferential trade arrangement
B)Economic union
C)Common market
D)Free trade area

Question 6

Suppose that apples from Japan face a 15% tariff in Germany and a 20% tariff in Italy,while Germany and Italy maintain free trade between each other.Germany and Italy are therefore part of a(n):

A)Free trade area
B)Customs union
C)common market
D)economic union

Question 7

Areas set up to attract foreign investments by allowing the importation of raw and intermediate materials without paying tariffs are called:

A)Customs unions
B)Duty-free zones
C)free trade area
D)Economic unions

Question 8

Benelux is an example of a(n):

A)preferential trade arrangement
B)customs union
C)common market
D)economic union

Question 9

Which of the following organizations started as a customs union but transformed into a common market?

A)European Union
B)NAFTA
C)EFTA
D)Southern Common Market

Question 10

When a member of custom union,replaces one of its high cost production processes with a production process that uses lower cost imports from a member nation,this leads to:

A)trade creation
B)trade diversion
C)the generation of economies of scale
D)dynamic trade effect

Question 11

_______________ occurs when some domestic production in a member of the customs union is replaced by lower-cost imports from another member nation.

A)Trade creation
B)Trade diversion
C)Economies of scale
D)Decreasing returns to scale

Question 12

A _________________ allows no tariffs or other barriers on trade among members,and it harmonizes trade policies toward the rest of the world.

A)Preferential trade arrangements
B)Customs union
C)Common market
D)Free trade area

Question 13

Direct investments made in a nation or other economic units to avoid import tariffs are known as:

A)tariff factories
B)tariff diversion
C)tariff creation
D)duty-free zones

Question 14

The static welfare effects resulting from the formulation of customs unions are measured by the extent to which it leads to ___________ and ____________.

A)trade creation; trade diversion
B)economies of scale; free trade
C)dynamic effects; trade diversion
D)dynamic effects; trade creation

Question 15

Which of the following is not an example of dynamic benefits of the formation of customs unions?

A)increased competition
B)stimulus to investment
C)better utilization of economic resources
D)trade creation and trade diversion

Question 16

Trade creation will ________________ for the domestic country.

A)decrease welfare
B)increase welfare
C)have no effect on welfare
D)initially increase,then decrease welfare

Question 17

The British Commonwealth Preference Scheme is an example of a(n):

A)free trade area
B)customs union
C)preferential trade arrangement
D)common market

Question 18

___________________ provide reduced barriers on trade among participating nations than on trade with nonmember nations.

A)Free trade areas
B)Common markets
C)Customs unions
D)Preferential trade arrangements

Question 19

Which of the following represents the highest form of economic integration?

A)Customs union
B)Common market
C)Economic union
D)Preferential trade arrangements

Question 20

______________ occur(s)when lower-cost imports from outside the union are replaced by higher-cost imports from another union member.

A)Trade creation
B)Trade diversion
C)Economies of scale
D)Increasing opportunity costs

Question 21

The agreement among the Baltic States of Estonia,Latvia,and Lithuania is known as:

A)the Commonwealth of Independent States ( CIS)
B)the Central European Free Trade Association (CEFTA)
C)the Baltic States Free Trade Area (BFTA)
D)the European Union (EU)

Question 22

As a result of their high farm support price level,the EU has experienced:

A)high agricultural surpluses,high storage costs,and subsidized exports
B)low agricultural surpluses,and low storage costs
C)non-subsidized exports among the agricultural industry
D)economies of scale in agricultural

Question 23

Which free trade area was formed in 1960 by the United Kingdom,Austria,Denmark,Norway,Portugal,Sweden,and Switzerland?

A)European Economic Area (EEA)
B)European Free Trade Association (EFTA)
C)North American Free Trade Agreement (NAFTA)
D)Southern Common Market (Mercosur)

Question 24

When was the EFTA (European Free Trade Association)formed?

A)1960
B)1940
C)1970
D)1965

Question 25

Free trade access to Mexico allows the US industries to import __________________ from Mexico and maintain other operations in the US rather than risking the loss of all jobs in the industry to low-wage countries.

A)labor-intensive components
B)technology
C)capital-intensive components
D)textiles

Question 26

Which of the following significant change with respect to the development of the European Union took place in January,1993,as a result of the Single European Act?

A)Becoming a single unified market by removing the restrictions on the free flow of goods,services,and resources among its members
B)Adopting a common currency for the members
C)Forming supranational fiscal and monetary agencies
D)Becoming an economic union

Question 27

In September,1993,__________________ signed the North American Free Trade Agreement (NAFTA).

A)the US and Canada
B)the US,Mexico and Central America
C)the US,Canada and Mexico
D)the US,Canada and Greenland

Question 28

______________ resulting from the formation of a customs union tend(s)to be five to six times larger than ______________,thus providing incentive for the United Kingdom to join the EU in 1973.

A)Static gains; dynamic gains
B)Trade creation; trade diversion
C)Dynamic gains; welfare gains
D)Dynamic gains; static gains

Question 29

Which of the following barriers are imposed by the EU to equalize the price of imported agricultural products and agricultural prices set by the EU?

A)orderly market agreements
B)export quotas
C)variable import levies
D)import quotas

Question 30

In the CMEA member countries,international transactions were controlled through ___________________.

A)duty-free zones
B)state trading companies
C)centrally planned economies
D)bilateral agreements

Question 31

An agreement between two nations regarding quantities and terms of specific trade transactions is known as:

A)A preferential trade agreement
B)A voluntary export restraint
C)A free trade area
D)a bilateral agreement

Question 32

Trade deflection is most likely to occur in which of the following?

A)Preferential trade agreement
B)Customs union
C)Free trade area
D)Monetary union

Question 33

The ____________________ was founded by the Treaty of Rome,signed in March 1957 by West Germany,France,Italy,Belgium,the Netherlands,and Luxembourg,and came into being on January 1,1958.

A)NAFTA
B)European Union (EU)
C)Variable import levies
D)European Economic Area (EEA)

Question 34

The ___________________ was formed by Argentina,Brazil,Paraguay,and Uruguay in 1991.

A)European Economic Area (EEA)
B)European Free Trade Association (EFTA)
C)North American Free Trade Agreement (NAFTA)
D)Southern Common Market (Mercosur)

Question 35

Which of the following involves purchasing a specified quantity of a commodity for a year or more from a state trading company of another nation?

A)Bulk purchasing agreement
B)Bilateral agreement
C)Voluntary export restraint
D)Preferential trade agreement

Question 36

A dynamic welfare gain resulting from the formation of a customs union would be:

A)trade diversion
B)trade creation
C)diseconomies of scale
D)economies of scale

Question 37

The United States benefits from NAFTA include:

A)Increased competition in product markets
B)Increased competition in resource markets
C)Lower price of many U.S commodities
D)All of the above

Question 38

The organization of Communist bloc nations formed by the Soviet Union in 1949 to divert trade from Western nations and achieve a greater degree of self-sufficiency among Communist nations was the:

A)European Economic Area (EEA)
B)Council of Mutual Economic Assistance (CMEA)
C)North American Free Trade Agreement (NAFTA)
D)Southern Common Market (Mercosur)

Question 39

At the time of the NAFTA agreement,who was the United States' largest trading partner?

A) Canada
B)Japan
C)Mexico
D)England

Question 40

Economies in which the government owns factors of production and determines prices are known as:

A)Mixed market economies
B)state trading companies
C)centrally planned economies
D)market economies

Question 41

Armenia,Estonia,and Georgia are not Newly Independent States (NIS).

Question 42

List and briefly describe,from loosest to tightest,the five types of economic integration:

Question 43

Early in the EU's history,the union had no tariffs on items traded with developing countries.

Question 44

After the customs union is formed and trade barriers among the member nations are enacted,the member nations may become less efficient due to the joined union.

Question 45

Customs unions tend to reduce the level of competition among member nations.

Question 46

Which of the following is an economic integration among developing countries?

A)NAFTA
B)EU
C)CARIFTA
D)Benelux

Question 47

The formation of a customs union generates static effects for members,but not dynamic effects.

Question 48

Why do countries engage in economics integration? Doesn't it have a reduced welfare effect as opposed to free trade?

Question 49

A Country will have positive static benefit from a customs union if

A)the resulting trade diversion is significantly stronger than the resulting trade creation
B)if the resulting trade creation is significantly stronger than the resulting trade diversion
C)if the price of import significantly increases over the free trade price without tariff
D)if there is significant stimulus for investment

Question 50

From the flowing diagram find out the static benefit of participating in a custom union which requires it to switch from a non-member supplier with $2 price and $1 tariff to a member supplier with $2.50 price.

Question 51

The value-added-tax system is one in which a tax is levied at each stage of production and then ultimately passed on to the consumer.

Question 52

The European Union became a common market in 1993 by allowing free movement of labor and capital among member nations.

Question 53

An economic union is the most robust form of economic integration.

Question 54

Trade deflection is a problem for customs unions.