Week 6 - trade blocs; restrictions on free trade

Question 1

What is a customs union?

Answer 1

there is a combination of a free trade area plus a common external tariff

Question 2

What is a single market

Answer 2

built around the 4 freedoms of goods, services, labour and capital

Question 3

What is a monetary union

Answer 3

involves a common currency, one monetary policy and a single central bank

Question 4

Give an example of a customs union - other than the EU

Answer 4

Southern African Customs Union; East African Customs Union

Question 5

One advantage of joining the EU is import tariff free access. Explain this.

Answer 5

Opportunity to exploit economies of scale brining lower long run unit costs.

Question 6

Another advantage of being part of the EU is the discipline of more intense competition from being inside the EU single market. Explain this

Answer 6

Businesses must become cost efficient and improve their dynamic efficiency.

Question 7

One advantage of being part of the Euro is currency risk. Explain this.

Answer 7

The Euro has been more stable than smaller currencies. Reduced currency risk makes it cheaper for smaller countries to borrow money.

Question 8

Another advantage of being part of the Euro is transactions. Explain this.

Answer 8

A shared currency eliminates the costly conversion of money, it might also improve labour mobility within the EU single market

Question 9

Give three conditions for when an optimal currency area works best

Answer 9

1. When nations are willing to make fiscal transfers between each other and provide financial support during difficult times after economic shocks. 2. Where countries are highly integrated with each other - a high percentage of trade is with fellow currency union members. 3. When the effects of interest changes or a movement in the exchange rate have a broadly similar effect on businesses and households from country to country.

Question 10

Define import tariff

Answer 10

A tax or levy on imports that may be ad valorem (%) or a specific tax

Question 11

What is a non-tariff barrier

Answer 11

Barriers such as quotas, environmental regulations, trade embargoes and export subsidies

Question 12

What is the infant industry argument

Answer 12

protect emerging industries until they have gained economies of scale

Question 13

what is the sunset industry argument

Answer 13

use tariffs to slow the decline of older sectors and limit risks of structural unemployment