Th4.1: Trading Blocs - Advantages

Question 1

What are the six advantages of trading blocs?

Answer 1

specialisation
larger customer market
protected
competition
create more jobs
increased choice

Question 2

Specialisation

Answer 2

free trade encourages specialisation and this increases output according to comparative advantage. this specialisation also helps firms to benefit from economies of scale, causing lower prices and costs - a dynamic advantage

Question 3

Large customer market

Answer 3

firms may be able to grow much larger by creating a larger customer market, but this may be difficult given different customer markets in each country - economies of scale will be increased further over time as economies expand

Question 4

Protected

Answer 4

firms inside the bloc are protected from cheaper imports from outside e.g those in the EU are protected from Chinese imports

Question 5

Competiton

Answer 5

another dynamic benefit may be competition, as the removal of barriers means domestic industries face greater competition. this encourages innovation and lower prices, leading to improvements in productive and allocative efficiency

Question 6

Create more jobs

Answer 6

the increased trade may create more jobs if it leads to an increase in output

Question 7

Increased choice

Answer 7

there may be increased choice for consumers