trade blocks and patterns of trade

Question 1

whats a trade block?

Answer 1

a group of countries who have come together and signed an agreement to reduce or eliminate tarrifs, quotas and other protectionist barries between each other.

Question 2

whats a free trade area?

Answer 2

area which has eliminated trade barries (NAFTA)

Question 3

whats a custom union?

Answer 3

area which eliminates internal trade barriers but maintain common external trade barriers e.g. turkey, russia

Question 4

whats a common market ?

Answer 4

eliminate internal trade barriers, adopt common external barriers, allow free movement of resources

Question 5

whats an economic union?

Answer 5

eliminate internal barriers, adopt common external barriers, free movemeent of resources and uniform set of economic policies e.g. EU

Question 6

what are the pros and cons of brexit ?

Answer 6

PROS:
- increased wages due to less competition
- control immigration
- greater freedom of taxation
- no more EU membership fee
CONS:
- cost and loss of over 4% of GDP
- trade friction (more expensive to import food)
- end to freedom of movement of citizens

Question 7

whats trade creation?

Answer 7

switching from purchasing products from a high-cost producer to a low cost producer

Question 8

whats trade diversion?

Answer 8

swiching from purchasing goods from a low price producer to a high price producer

Question 9

what are the pros and cons of trade blocks?

Answer 9

PROS :
- Trade creation forming a free trade area (no barries to trade) which increases trade and therefor economic growth
- specialisation, nations should specialise in goods they have a lower opportunity cost in (comparitive advantage) increasing World Output
- increased competition = lower prices and better quality / variety of goods, increasing consumer welfare
- economies of scale
.
CONS :
- could lead to trade diversion preventing specialisation and raising prices
- less profit due to lower prices of increased competition