ECON4 Trading Blocs and the WTO

Question 1

What is a trading bloc

Answer 1

general term for a group of countries entering a trade agreement to reduce barriers to trade

Question 2

In order of increasing integration what are the types of trading blocs

Answer 2

Preferential trade area (PTA)Free trade area (FTA)Customs unionCommon marketEconomic union Full integration

Question 3

what is a customs union

Answer 3

free trade and a common external tarriff barrier

Question 4

what is a free trade area

Answer 4

free trade within bloc but individual trade barriers

Question 5

what is a common market

Answer 5

free movement of factors of production

Question 6

What is trade creation

Answer 6

consumers switch from high to low-cost producer

Question 7

what is trade diversion

Answer 7

consumer switch from low to high cost producers

Question 8

2 advantages of trading blocs

Answer 8

encourages FDI due to trade potentialencourages competitiveness and effeciency

Question 9

2 disadvantages of trading blocs

Answer 9

can be ineffective and lead to trade diversioncan reduce national sovereignty and control

Question 10

What is the condition for consumers to benefit from a trading bloc

Answer 10

trade diversion < trade creation

Question 11

difference between static and dynamic gains from trade

Answer 11

static are made straight away upon entry and dynamic are over time

Question 12

Name a key example of a monetary union

Answer 12

eurozone and the european central bank

Question 13

What are the rules for eurozone members

Answer 13

fiscal debt cannot be greater than 3% GDPnational debt cannot be higher than 60% GDP

Question 14

3 advantages of a monetary union like the Eurozone

Answer 14

improved price transparancy and stabilityinward investmentless volatile exchange rate as more countries behind it

Question 15

2 disadvantages of monetary union

Answer 15

transition costs (menu costs, shoe leather etc)Loss of policy independence

Question 16

What are the convergence criteria for joining a single currency? 5

Answer 16

low inflationlow fiscal deficitlow national debt (as a % GDP)stable ERsimilar IR

Question 17

what is the WTO

Answer 17

world trade organisation

Question 18

what did the wto replace

Answer 18

GATT - general agreements on tariffs and trade

Question 19

objectives of the WTO

Answer 19

trade liberalisationfollow trade agreements

Question 20

difference between plurilateral bilateral and multilateral

Answer 20

bi - 2 pluri - multiplemulti - everyone

Question 21

most recent WTO round

Answer 21

Doha round (QATAR) 160 countries

Question 22

3 negatives if WTO

Answer 22

rich countries exploit poorer onesbad for environmentPushes down prices/revenue for developing countries

Question 23

Define protectionism

Answer 23

the use of economic policies to manipulate imports and exports

Question 24

Types of protectionism

Answer 24

TariffsQuotas subsidiesAdmininstrative barriersexchange rate manipulation

Question 25

3 Pros of free trade

Answer 25

encourages competition and effeciencytheory of comparative advantagerise in living standards

Question 26

3 cons of protectionism

Answer 26

retaliationdead weight losscan be regressive

Question 27

3 pros of protectionism

Answer 27

Protects infant industries (sunrise and sunset)can improve diversitycombat dumping from other countries