Question 1

Trade diversion occurs when higher-cost external suppliers replace lower-cost suppliers within the free trade area.

Accepted Answer

Trade diversion refers to the phenomenon where lower-cost suppliers outside the free trade area are replaced by higher-cost suppliers within the area, leading to economic inefficiencies. This can occur when a free trade area or customs union negotiates reduced or eliminated tariffs on imports from member countries, leading to an increase in trade between these countries but potentially decreasing trade with non-member countries.

Question 2

Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.

Accepted Answer

This is because in a free trade area, goods can be produced by the lowest cost producers, leading to increased trade and production within the area. This can result in trade creation, which benefits both consumers and producers.

Question 3

Europe now has two trade blocs: the European Union and the European Free Trade Association.

Accepted Answer

The statement is true.

Question 4

An economic union involves the free flow of products and factors of production between members and the adoption of a common external trade policy.

Accepted Answer

This is the definition of an economic union according to economic theory. Examples of economic unions include the European Union and the East African Community.

Question 5

A customs union eliminates trade barriers between member countries and adopts a common external trade policy.

Accepted Answer

A customs union aims to remove trade barriers, such as tariffs and quotas, between member countries and establishes a common external trade policy towards non-member countries.

Question 6

Europe has been the most successful example of regional integration

Accepted Answer

Europe has achieved a high level of regional integration with the establishment of the European Union (EU) and its various policies and initiatives such as the free movement of goods, services, capital, and people within the EU. The EU has also played a significant role in promoting peace, stability, and prosperity in Europe. While there have been challenges and criticisms of the EU, overall, Europe's regional integration has been successful compared to other regions in the world.

Question 7

All regional trade agreements reached in the past half century are still in force.

Accepted Answer

Many regional trade agreements have been renegotiated, replaced, or have ceased to exist over time due to various economic, political, or strategic reasons.

Question 8

In a theoretically ideal common market, labour and capital are free to move, as there are no restrictions on immigration, emigration, or cross-border flows of capital between markets.

Accepted Answer

In a theoretically ideal common market, there are no restrictions on the movement of labour and capital, allowing for free flows between markets.

Question 9

An economic union entails even closer economic integration and cooperation than a common market.

Accepted Answer

An economic union involves not only the elimination of trade barriers among member states but also the coordination of economic policies, including the adoption of a common currency, free movement of labor and capital, and a common trade policy towards non-member countries.

Question 10

As the opening case on the European energy situation shows, political opposition and the realities of the editing industry structure can make this difficult to attain.

Accepted Answer

The opening case on the European energy situation discusses how political opposition and structural challenges have made the transition to renewable energy difficult to attain.

Question 11

In a free trade area all barriers to the trade of goods and services among member countries are removed.

Accepted Answer

A free trade area is a group of countries that have agreed to eliminate barriers to trade, such as tariffs and quotas, between themselves. This means that businesses and individuals in these countries can trade goods and services freely without any restrictions or limitations.

Question 12

By 2008 few of the WTO's members were participating in regional trade agreements.

Accepted Answer

By 2008, many of the WTO's members were participating in regional trade agreements, such as the European Union, NAFTA, and ASEAN.

Question 13

The European Committee has been directly elected by citizens of the EU countries since the late 1970s.

Accepted Answer

The European Parliament, not the European Committee, has been directly elected by citizens of the EU countries since the late 1970s.

Question 14

Although the European Union is the best known, a number of successful common markets exist throughout the world.

Accepted Answer

The answer of Although the European Union is the best...

Question 15

Several levels of economic integration are possible in theory.From most integrated to the least integrated they are area free trade area, a customs union, a common market, an economic union, and finally, a full political union.

Accepted Answer

The correct order from least to most integrated is: free trade area, customs union, common market, economic union, and full political union.

Question 16

A full common market requires a common currency, harmonization of the member countries' tax rates, and a common monetary and fiscal policy.

Accepted Answer

A full common market involves the free movement of goods, services, capital, and labor among member countries, but it does not necessarily require a common currency, harmonization of tax rates, or a common monetary and fiscal policy. These are features of deeper economic integration, such as an economic and monetary union.

Question 17

The EU is on the road towards at least partial political union.

Accepted Answer

The EU has been moving towards closer political integration, with the creation of common institutions, shared policies and decision-making powers. Although the process is still ongoing and some EU member states are reluctant to give up sovereignty, there has been a steady trend towards increased political union.

Question 18

Most attempts to achieve regional economic integration have been very amicable.

Accepted Answer

Most attempts to achieve regional economic integration have encountered various challenges and disagreements among participating countries, showing that achieving economic integration is not always amicable.

Question 19

The last few years has witnessed an unprecedented proliferation of regional trade agreements.

Accepted Answer

This statement is true. The number of regional trade agreements has increased significantly in recent years. According to the World Trade Organization, there were 292 regional trade agreements in force as of July 2021.

Question 20

The most enduring free trade area in the world is the European Free Trade Association.

Accepted Answer

The European Free Trade Association (EFTA) was established in 1960 and is still in existence today, making it the longest-running free trade area in the world.

Quiz 8: Regional Economic Integration