Trading Blocs

Question 1

Trading Bloc

Answer 1

Trading blocs are formed when countries join together and all agree to remove trade barriers between each other.

Question 2

Four Types of Trading Bloc

Answer 2

The four types of trading bloc are; Free Trade Areas, Customs Unions, Common Markets, Monetary Unions.

Question 3

Free Trade Area

Answer 3

Trade barriers are removed between member countries.

Question 4

Common External Tariff

Answer 4

Where members of a trading bloc must all have the same tariffs on external non-member countries.

Question 5

Customs Union

Answer 5

Trade barriers are removed between member countries and there is a common external tariff placed on countries outside the trading bloc.

Question 6

Common Market

Answer 6

Trade barriers are removed between member countries and there is a common external tariff placed on countries outside the trading bloc and factors of production can move freely between countries.

Question 7

Monetary Union

Answer 7

Trade barriers are removed between member countries and there is a common external tariff placed on countries outside the trading bloc and countries share a common currency.

Question 8

1. The European Union

Answer 8

The European Union is a customs union with 27 member countries. They have removed trade barriers between each other and share a common external tariff with non-EU countries.

Question 9

2. The European Single Market

Answer 9

The European Single Market is a common market, which means that factors of production, like labour, can move freely between the 31 countries.

Question 10

3. The Eurozone

Answer 10

The Eurozone is a monetary union meaning that all 19 of its members have adopted a common currency - the Euro.

Question 11

Which of the trading blocs is the European Union an example of?

Answer 11

The European Union is a Customs Union which means that trade barriers are removed between member countries and there is a common external tariff placed on countries outside the trading bloc.

Question 12

Trade Creation

Answer 12

When the removal of tariffs means that the quantity of imports increases and trade is created.

Question 13

Trade Diversion

Answer 13

When the creation of a trading bloc means that trade is diverted from low cost producers outside the bloc to high cost producers inside the bloc.

Question 14

Which of the following shows the likely impact of the introduction of a tariff?

Answer 14

The introduction of a tariff will increase the price leading to a extension in domestic supply and a contraction in domestic demand as shown below. This will decrease the quantity of imports.