Trading Blocs And WTO Flashcards
What is a trading bloc (3)
Trade agreement between 2 or more countries
free trad between memeber countries
Common external tariff in non members
What’s a single market (2)
Everything is harmonised
Movement of people, goods and services
What is a customs union (2)
When a group of countries agree to have free trade
Agree on a common external tariff to countries outside
Advantage of customs union
Trad between members increases - goods are cheaper
What is trade creation
Increase in economic welfare from joining a free trade area - customs union
How does trade creation occur (2+)
When there is a reduction in tariff barriers = lower prices
This switch to lower cost producers = increase in consumer surplus and economic welfare
Trade creation diagram specifics (6)
World supply is perfectly elastic
Price reduces + imports rise from Q3-Q4 to Q1-Q2
consumer surplus of A,B,C,D
reduced producer surplus of B
Gov looses tariff revenue of C
Welfare increase of B+D
Negative of custom union
Trade diversion
Trade diversion diagram specifics (4)
Consumer surplus of A,B,C,D
reduced producer surplus of A
Gov looses C + E of tariff revenue
Imports Q1-Q2
What is trade diversion (2)
More efficient none members sell fewer goods to members
Less efficient members capitalise in union
Other negatives of CU (2j
Loss of soveignty
Allocation of tariff revenue
Loss of soveignty problem
Must follow rules and regulations
Allocation of tariff rev problem (2)
When tariff collected = not given out equally
Uk was net contributor but don’t necessarily get that back
Brexit problem
If UK wishes to create individual trade deals with the USA, China and India = cannot retain its current status as a full member of the European customs union
Advantages of single markets (3)
Supply becomes inelastic in long run
Increased labour mobility = supply increases = downward pressure on inflation
Improve productivity puzzle
Disadvantages of a single market (2)
Pressure on FoPs
Reduced wages
Short term Effects of leaving single market (EU) (4)
Increased inflationary pressure = 53% of uks trade was w/EU in 2014
Since referendum = pound fell 10-15% = cost push inflation
Why did uk leave EU (2)
Long run - short term costs will be overcome by deals ‘oven ready’
Control borders + negotiations
What is inward investment (2)
EU countries invest in other countries
Example = BMW
Main example of inward investment (3)
CAP
Major specific subsidy to farmers
Farmers loose subsidy and struggle = increase prices which consumers can’t afford = loose farms
ExmPles of loss of inward investment (1)
BMW relocated to Spain = Germany not want factories in uk because have to pay tariff to move goods
Free movement of labour effect on UK (3+)
Net migration of mostly Eastern European workers into the UK = stress on housing
Net immigration is mostly positive – migrants tend to be of working age = help fill labour market shortages in areas = plumbing, nursing, cleaning and teaching
Costs UK £2 a day to house immigrants in hotels
If UK left EU - labour movement problem (3+)
Labour markets become less flexible = 80% of workers pre brexit where immigrants - temporary
UK would have greater freedom to be able to restrict net immigration = however it would also make it harder for UK nationals to work abroad
There are currently 2 million Britons working in EU
Effects on prices - leaving EU (2)
Food prices have risen on average 30%
Pasta price risen 150% since brexit = staple food product
