Week 7 - Chapter 12: Trade blocs and trade blocks Flashcards
Trade blocs
Each member country can import from other member countries freely, or at least cheaply, while imposing trade barriers against imports from outside countries
Trade embargoes (trade blocks)
Some countries discriminate agains certain otters countries, usually because of policy dispute
Types of economic blocs
Free trade area
Customers union
Common market
Economic union
Free trade area
Members remove trade barriers among themselves but keep their separate national barriers against trade with the outside world
Customs union
Members remove barriers to trade among themselves and adopt a common set of external barriers
Common market
Members allow full freedom of factor flows among themselves in addition to having a customs union
Economic union
Member countries unify all their economic policies, including monetary and fiscal policies as well as policies toward trade and factor migration
What are other possible gains form a trade bloc?
An increase in completion can reduce prices
An increase in completion can lower costs of production
Firms can lower their costs by expanding their scale of production in the larger market
Consumer gain access to a large number of varieties or models of a product
Forming the trade bloc increases opportunities for business investments
Economic sanctions or embargoes
Discriminatory restrictions or bands on economic exchange
Political failure of an embargo
The occurs when the target country’s national decisions makers have so much stake in the policy that provoked the embargo, that they will stick with that policy even if the economic cost to their nation becomes extreme
Economic failure of an embargo
The embargo inflicts little damage on the target country but possibly even great damage on the imposing country
