Ch. 74 Common Markets

Question 1

Define common external tariff?

Answer 1

A common tariff set by a group of countries imposed on imported goods from non-member countries.

Question 2

What are two solutions to varying tariffs between countries who have free trade between them? (Eg. 10% tariff in UK and 20% in France, but free trade between them)

Answer 2

• Common external tariff

- Impose a tariff on re-exports

Question 3

A common market aims to establish a single market. What are the four main aims for common market?

Answer 3

• No custom posts
• Harmonisation of taxes
• Same product standards
• Common currency

Question 4

Define harmonisation?

Answer 4

Establishing common standards, rules and levels of everything from safety standards to taxes, tariffs and currencies.

Question 5

Define a free trade area?

Answer 5

A group of countries between which there is free trade in goods and services but which allows member countries to set their own level of tariffs against non-member countries.

Question 6

What are the five stages of economic integration?

Answer 6

1) preferential trading area (reduced tariffs)
2) free trade agreement (no tariffs between members)
3) customs union (no tariffs between, common tariffs, possible harmonisation of econ. policy)
4) common market (no tariffs between, common tariffs, free factor mobility, probable harmonisation of econ. policy)
5) economic union (no tariffs, common tariffs, free factor mobility, harmonisation of policy)

Question 7

Define trade creation?

Answer 7

The switch from purchasing products from a high cost producer to a low-cost producer.

Question 8

Define trade diversion?

Answer 8

The switch from purchasing products from a low-cost producer to a high cost producer.

Question 9

Economies of scale dynamic gain and EV from a common market?

Answer 9

• Economies of scale from companies spreading across the market.
• EV: works better with products that are homogenous between countries (eg. Chemicals)

Question 10

Competition dynamic gain and EV from a common market?

Answer 10

• increased competition due to less protectionism, also businesses have to become more efficient to stay competitive.

EV: in long run more efficient firms are likely to gain oligopoly/monopoly

Question 11

Effects of free transfer of resources? (2) (1 static 1 dynamic)

Answer 11

• money paid into budget of common market is unlikely to be redistributed evenly (static gains/losses)
• successful countries are likely to make dynamic gains due to brain drain

Question 12

Define common market?

Answer 12

A group of countries between which there is free trading in products and factors of production, and which imposes a common external tariff on imported goods from outside the market.