Trading Blocs And WTO

Question 1

What is a trading bloc (3)

Answer 1

Trade agreement between 2 or more countries
free trad between memeber countries
Common external tariff in non members

Question 2

What’s a single market (2)

Answer 2

Everything is harmonised
Movement of people, goods and services

Question 3

What is a customs union (2)

Answer 3

When a group of countries agree to have free trade
Agree on a common external tariff to countries outside

Question 4

Advantage of customs union

Answer 4

Trad between members increases - goods are cheaper

Question 5

What is trade creation

Answer 5

Increase in economic welfare from joining a free trade area - customs union

Question 6

How does trade creation occur (2+)

Answer 6

When there is a reduction in tariff barriers = lower prices
This switch to lower cost producers = increase in consumer surplus and economic welfare

Question 7

Trade creation diagram specifics (6)

Answer 7

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

Question 8

Negative of custom union

Answer 8

Trade diversion

Question 9

Trade diversion diagram specifics (4)

Answer 9

Consumer surplus of A,B,C,D
reduced producer surplus of A
Gov looses C + E of tariff revenue
Imports Q1-Q2

Question 10

What is trade diversion (2)

Answer 10

More efficient none members sell fewer goods to members
Less efficient members capitalise in union

Question 11

Other negatives of CU (2j

Answer 11

Loss of soveignty
Allocation of tariff revenue

Question 12

Loss of soveignty problem

Answer 12

Must follow rules and regulations

Question 13

Allocation of tariff rev problem (2)

Answer 13

When tariff collected = not given out equally
Uk was net contributor but don’t necessarily get that back

Question 14

Brexit problem

Answer 14

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

Question 15

Advantages of single markets (3)

Answer 15

Supply becomes inelastic in long run
Increased labour mobility = supply increases = downward pressure on inflation
Improve productivity puzzle

Question 16

Disadvantages of a single market (2)

Answer 16

Pressure on FoPs
Reduced wages

Question 17

Short term Effects of leaving single market (EU) (4)

Answer 17

Increased inflationary pressure = 53% of uks trade was w/EU in 2014
Since referendum = pound fell 10-15% = cost push inflation

Question 18

Why did uk leave EU (2)

Answer 18

Long run - short term costs will be overcome by deals ‘oven ready’
Control borders + negotiations

Question 19

What is inward investment (2)

Answer 19

EU countries invest in other countries
Example = BMW

Question 20

Main example of inward investment (3)

Answer 20

CAP
Major specific subsidy to farmers
Farmers loose subsidy and struggle = increase prices which consumers can’t afford = loose farms

Question 21

ExmPles of loss of inward investment (1)

Answer 21

BMW relocated to Spain = Germany not want factories in uk because have to pay tariff to move goods

Question 22

Free movement of labour effect on UK (3+)

Answer 22

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

Question 23

If UK left EU - labour movement problem (3+)

Answer 23

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

Question 24

Effects on prices - leaving EU (2)

Answer 24

Food prices have risen on average 30%
Pasta price risen 150% since brexit = staple food product

Question 25

Cost of EU membership (2)

Answer 25

Uk was net contributor = 2014 paid 17bn (0.06% of GDP) to EU
Got the CAP but is an inefficient policy

Question 26

Why is CAP inefficient (3)

Answer 26

Over 60% of EU budget goes on it
Encourages inefficient farmers
Excess supply = waste = ‘butter mountains’ + ‘wine lakes’

Question 27

What does WTO do (4)

Answer 27

Deals with the rules of trade between nations at a global or near-global level
Resolves conflicts between nations
Provide forums for agreeing over trade agreements + the implementation
Aim = help trade flow as freely as possible