14) Explain Economic Integration Flashcards
what is international trade?
International trade involves the exchange of goods and services across international boundaries. Countries involved in international trade can either choose to engage in free trade or whether to engage in protectionist policies.
free trade? and protectionism
The former allows for relatively free movement of goods and services between your country and others; protectionist policies apply restrictions of the movement of goods e.g. tariffs, quotas and regulations e.g. to with labelling or specifications needed for products
what is economic intergration?
Economic integration is an agreement among countries in a geographic region to reduce and ultimately remove, tariff and non-tariff barriers to the free flow of goods or services and factors of production among each other; any type of arrangement in which countries agree to coordinate their trade, fiscal, and/or monetary policies are referred to as economic integration.
what is a free trade area (FTA)?
is formed when at least two states partially or fully abolish custom tariffs on their inner border. Free trade area is a type of trade bloc, a designated group of countries that have agreed to eliminate tariffs, quotas on most (if not all) goods traded between them.
what is NAFTA?
NAFTA- the North American Free Trade Area is an agreement of this nature between Canada USA and Mexico.
what is a customs union?
introduces unified tariffs on the exterior borders of the union (common external tariffs). A customs union is a type of trade bloc which is composed of a free trade area with a common external tariff.
The participant countries set up common external trade policy. When founded in 1957, the EU was a Customs Union, known as the EEC. The 6 members of the original EEC had free trade between them and a common external tariff on all imports from outside the 6 countries.
what is a single market?
A single market (such as the EU) is a type of trade bloc which is composed of a customs union with common policies on product regulation, and freedom of movement of the factors of production (capital and labour) and of enterprise. The goal is that the movement of capital, labour, goods, and services between the members is as easy as within them. This has many benefits.
what are the benefits and disadvantages of a single market?
With full freedom of movement for all the factors of production between the member countries, the factors of production become more efficiently allocated, further increasing productivity. For both business within the market and consumers, a single market is a very competitive environment, making the existence of monopolies more difficult. Inefficient companies will suffer a loss of market share and may have to close down. However, efficient firms can benefit from economies of scale, increased competitiveness and lower costs, as well as expect profitability to be greater as a result.
Consumers benefit by the single market in the sense that the competitive environment brings them cheaper products.
what is a monetary union?
Monetary Union (e.g. the Eurozone) is a type of trade bloc which is composed of a customs union/single market with a common currency. This greatly restricts the ability of governments to manage their own economy as they are required to converge with other economies in the union. In particular, they cannot manage their own monetary policy. This is because the union must have only one central bank and only one interest rate. Otherwise the single exchange rate would not work. A big problem with this is imbalances in standards of living.
what is an example of a monetary union?
For example, in the Eurozone the German economy has extremely high standards of living and a strong economy. By comparison Greece is much poorer. It is very difficult to make a single economic strategy to satisfy both.
what does a full economic union involve?
Full Economic Union (e.g the USA). This involves different states having complete free trade, a common external tariff, a single market, monetary union and also fiscal and supply-side union-i.e. the same federal taxation policies.
