Trading Blocs and World Trade Organisations

Question 1

What is a free trade area?

Answer 1

Where countries agree to trade goods with other members without protectionist barriers.

Question 2

What do free trade areas allow?

Answer 2

Allow members to exploit their comparative advantages, which increases efficiency.

Question 3

What are the benefits of free trade areas?

Answer 3

-Increased efficiency
-Encourages competition
-Specialisation of countries
-Lower prices

Question 4

What are the consequences of a free trade area?

Answer 4

-Less tax revenue
-May prevent the growth of infant industries if a country becomes too dependent on import.
-Domestic demand may fall as consumers buy cheaper products from foreign firms.

Question 5

What is a customs union?

Answer 5

Countries in a custom union have established a common trade policy with the rest of the world. They have free trade between members and may have a common external tariff.

Question 6

What are the benefits of a custom union?

Answer 6

-Tariffs are removed so products are cheaper.
-Fosters economic cooperation among nations.

Question 7

What are the drawbacks of a customs union?

Answer 7

-Countries can’t negotiate their own deals because there is a common external tariff.
-Loss of national sovereignty.

Question 8

What is a common market?

Answer 8

This establishes free trade in goods and services, a common external tariff and allows free movement of capital and labour across borders.

Question 9

What are the advantages of a common market?

Answer 9

-Free movement of people, goods, services and capital
-Efficiency in production.
-Expanded markets, enabling economies of scale and increased profitability.

Question 10

What are the disadvantages of common market?

Answer 10

-Less competitive may suffer