Question 1

Which of the following is true of a common market?

Accepted Answer

A common market involves the elimination of trade barriers between member countries, a common external trade policy, and the free movement of factors of production (e.g. labor, capital) between members. Option A describes a free trade area, while option B describes a customs union. Option D describes an economic union, which also includes a common currency.

Question 2

In a free trade area:

Accepted Answer

In a free trade area, member nations agree to remove barriers to the trade of goods and services among themselves. This means that they do not impose tariffs, quotas, or other restrictions on trade with each other. However, they may still maintain their own external trade policies regarding non-member countries. Common currencies, parliaments or external trade policies are not necessarily part of a free trade area agreement.

Question 3

The most enduring free trade area in the world is the:

Accepted Answer

The European Free Trade Association (EFTA) is the most enduring free trade area in the world, having been established in 1960. It includes four European countries (Switzerland, Norway, Iceland, and Liechtenstein) and has functioned as an alternative to the European Union for countries that do not want to join or have been denied membership.

Question 4

The Andean Pact is an example of a(n):

Accepted Answer

The Andean Pact, also known as the Andean Community, was a regional trade agreement signed in 1969 by Bolivia, Chile, Colombia, Ecuador, and Peru. It established a customs union between these countries, which eliminated tariffs and quotas for goods traded among them, while maintaining individual external tariffs for non-group member countries. Therefore, it is an example of a customs union.

Question 5

A(n)_____ involves the free flow of products and factors of production between member countries and the adoption of a common external trade policy,along with a common currency,harmonization of members' tax rates,and a common monetary and fiscal policy.

Accepted Answer

An economic union involves not only the free flow of goods and services like a free trade area or common market, but it also includes a common external trade policy, a common currency, fiscal and monetary policies, and harmonization of members' tax rates. A customs union, on the other hand, only involves the free flow of goods and services but not necessarily factors of production or other policies.

Question 6

All of the following are reasons why economic integration has never been easy to achieve or sustain except:

Accepted Answer

Linking neighboring economies makes them increasingly dependent on each other, which is actually a reason for economic integration rather than a challenge to it.

Question 7

On January 1,1993,_____ moved toward a single market with 340 million consumers.

Accepted Answer

The European Union was established in 1993 and moved toward a single market with 340 million consumers. MERCOSUR is a regional trade agreement in South America, the Andean community is another regional trade agreement in South America, and NAFTA is a trade agreement between the United States, Canada, and Mexico. None of these agreements were established in 1993.

Question 8

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

Accepted Answer

Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area, leading to more efficient production and lower prices.

Question 9

These are the most popular form of regional economic integration,accounting for almost 90 percent of regional agreements.

Accepted Answer

Free trade areas are the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements. In a free trade area, member countries eliminate tariffs and other trade barriers on goods and services traded between them, but each country retains its own individual trade policies with non-member countries. This allows for increased trade and economic cooperation among member countries while maintaining flexibility in external trade policies.

Question 10

Trade diversion occurs when:

Accepted Answer

Trade diversion occurs when higher-cost suppliers within a free trade area replace lower-cost external suppliers due to preferential treatment, leading to less efficient trade outcomes.

Question 11

A political benefit of economic integration is that:

Accepted Answer

Economic integration fosters cooperation and interdependence among neighboring countries, reducing the likelihood of conflicts and promoting political stability.

Question 12

Which of the following selections accurately depicts the levels of economic integration from least integrated to most integrated?

Accepted Answer

This selection accurately depicts the levels of economic integration from least integrated to most integrated. A free trade area involves the elimination of tariffs and quotas on trade between countries, but each country maintains its own trade policies with non-members. A customs union extends the elimination of tariffs and quotas to internal trade between members, but establishes a common external trade policy with non-members. A common market involves the free movement of goods, services, capital, and people between members, in addition to a common external trade policy. An economic union involves further economic integration, such as a single currency, harmonized fiscal policies, and common monetary policy. Finally, full political union involves the complete integration of member states into a single political entity, with a common government and constitution. Therefore, the correct order of levels of economic integration is: free trade area, customs union, common market, economic union, and full political union.

Question 13

Which of the following statements best defines a customs union?

Accepted Answer

A customs union eliminates trade barriers between member countries and adopts a common external trade policy. This means that all member countries have the same tariffs, quotas, and other trade restrictions against nonmember countries. However, each country maintains its own policies towards nonmember countries, so there may still be some differences in trade policies. A customs union does not necessarily involve a common currency or free movement of factors of production.

Question 14

An agreement between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods,services,and factors of production between each other is referred to as:

Accepted Answer

The definition provided matches the concept of regional economic integration, which refers to the elimination of trade barriers between countries in a specific geographic region to create a free trade area. This can take the form of a customs union, common market, or economic union.

Question 15

Identify the incorrect statement about a common market.

Accepted Answer

A common market does not establish a central political apparatus, unlike a political union. It focuses on economic integration and the elimination of barriers to the movement of goods, services, and factors of production within member countries.

Question 16

In a(n)_____,no discriminatory tariffs,quotas,subsidies,or administrative impediments are allowed to distort trade between member nations; however,each country is allowed to determine its own trade policies with regard to nonmembers.

Accepted Answer

A free trade area is a group of countries that have agreed to eliminate trade barriers between themselves, such as tariffs and quotas. However, each member country retains its own trade policies with regard to non-members. This means that there are no discriminatory tariffs, quotas, subsidies, or administrative impediments among member nations, promoting free trade and competition within the area. A common market goes a step further by allowing for the free movement of labor and capital, while an economic union also involves a coordinated economic policy among member nations. A political union involves a shared government and decision-making process among member nations.

Question 17

In 1991,Argentina,Brazil,Paraguay,and Uruguay implemented an agreement known as:

Accepted Answer

The acronym MERCOSUR stands for the Southern Common Market, in Spanish, Mercado Común del Sur. It is a regional trade agreement between Argentina, Brazil, Paraguay, and Uruguay that was signed in 1991 and implemented in stages beginning in 1995. The agreement aims to promote free trade and the movement of goods, services, and people between member countries. NAFTA (North American Free Trade Agreement) is a trade agreement between the United States, Canada, and Mexico; APEC (Asia-Pacific Economic Cooperation) is an intergovernmental forum that promotes economic cooperation among countries in the Asia-Pacific region; and FTAA (Free Trade Area of the Americas) was a proposed agreement for free trade among all countries in the Americas, which was never fully implemented.

Question 18

Identify the incorrect statement pertaining to the European Union.

Accepted Answer

Switzerland and Norway are not members of the European Union.

Question 19

The movement toward regional economic integration has been most successful in:

Accepted Answer

Europe has been the most successful in achieving regional economic integration with the formation of the European Union (EU) and the adoption of a common currency, the Euro. The EU member countries have established free trade agreements, a common market, and a customs union, allowing for the free flow of goods, services, capital, and people within the region. Latin America has made some progress with the formation of Mercosur and the Pacific Alliance, but these initiatives have faced challenges and limitations. North America has a free trade agreement in the form of NAFTA, but it has also been subject to controversy and renegotiation. Asia has various regional economic agreements, but they are not as comprehensive or integrated as the EU.

Question 20

The European Community was established by:

Accepted Answer

The European Community was established by the Treaty of Rome signed in 1957. This treaty created the European Economic Community (EEC) and laid the foundation for the modern-day European Union.

Quiz 8: Regional Economic Integration