hot topic: free trade(trading blocks)

Question 1

what are the 4 types of restrictions on free trade

Answer 1

• tariffs, a tax on imported goods
• quotas, a strict limit on the quantity of imported goods
• subsidies to domestic producers
• non- tariff barriers such as environmental regulations

Question 2

what are trading blocks

Answer 2

• where countries join together agreeing to remove trading barriers

Question 3

what is an example of a trading block

Answer 3

the european union

Question 4

how many memebers are there in the european union

Answer 4

• 27 members

Question 5

what was the estimated value of goods traded between the EU

Answer 5

3.1 trillion euros

Question 6

what are the 4 types of trading blocks

Answer 6

• free trade areas
• customs unions
• common markets
• monetary unions

Question 7

what is an example of a free trade area

Answer 7

• USMCA , UnitedStates-Mexico-Canada Agreement

Question 8

what is the difference between USMCA and NAFTA

Answer 8

the USMCA replced NAFTA in 2020

Question 9

what is a free trade area

Answer 9

• countries remove tade barriers between each other
• they are free to set their own trade barriers on non-memebr countries

Question 10

what is the difference between customs union and free trade areas

Answer 10

• countries in a customs union must have the sametariffs towards non-member countries
• countries in a free trade area, can set their own trade barriers for non-member countries

Question 11

“countries in a customs union must have the sametariffs towards non-member countries” - what are these tariffs called

Answer 11

common external tariffs

Question 12

what is an example of a common ecternal tariff

Answer 12

members of EU have a 10% common external tariff on imported cars

Question 13

what is the additional feature of a common market compared to customs unions

Answer 13

• free movement of factors of production(e.g. labour and capital)

Question 14

what is an example of a common market

Answer 14

European single market( all members of the EU + norway and switzerland)

Question 15

what is a monetary union

Answer 15

• all member countries remove trade barriers between each other
• must have a common externl tariff
• must share a common currency

Question 16

what is an example of a monetary union

Answer 16

• the Eurozone

Question 17

what is an example of trade creation

Answer 17

• before 1994 mexico had a 75% tariff on chicken imported from the USA(then it was removed as mexico joined NAFTA)

Question 18

what is the chain of analysis for trade creation

Answer 18

• increase in trade(due to lower peices) -> incrased quantity of goods -> increase in consumer welfare

Question 19

what is trade diversion(2)

Answer 19

• tarde is being diverted from a low cost producer outside the trading block
• to a high cost producer inside the block

Question 20

what is the chain of analysis for trade diversion

Answer 20

• increased prices -> decreased quantity ->, lower living standards

Question 21

what is an effect on the non-member countries as a result of trade diversion

Answer 21

decreased revenue -> loss in proft and unemployment -> potential loss in government revenue