4.1.5 Types of Trading Blocs Flashcards
What is a customs union?
When a group of countries agree to have free trade amongst themselves and agree on a common external tarriff for those abroad
What are the advantages of a customs union?
- increase trade flows
- trade creation
How does a customs union create increased trade flows?
The removal of non trade barriers means exporting goods across the customs union is more probable.
Link to AD and the effects
How does a customs union lead to a reduction in tarriffs and trade creation?
When a custom union is joined, any tarriffs imposed by the member states will be lost, meaning the price will fall
When the tarriff is removed, on the diagram what does consumer surplus rise to?
A + B + C + D
When a tarriff is removed, what happens to domestic producer surplus?
It falls to B
When a tarriff is removed, what happens to government revenue?
It falls by C
What is economic integration?
Process whereby countries coordinate to reduce trade barriers and to harmonise fiscal and monetary policy
What is a bileratal trade agreement?
Agreement to reduce tariffs and quotes between two countries
What is a free-trade area?
When countries join together to reduce completely tariffs and quotas but they are free to trade with other countries
Give an example of a free trade agreement?
NAFTA
What is a monetary union?
When a country has zero-tariffs/quotas and applies a common external tariff but also the countries adopt the same central bank
What is the World Trade Organiasation?
An international organisation that regulates world trade
What are the aims of the WTO?
- promote non discriminatory trade
- rid trade barriers
- make trade predictable
- promote fair competition
- make it beneficial to developing countries
What are the roles of the WTO?
- enforce trade rules
- resolve trade disputes
- provide a place to negotiate trade
- monitor trade liberalisation
- increase transparency
