Chapter 12 Flashcards
What is the primary characteristic of a free trade area?
a) Common external trade policies
b) Free flow of financial capital
c) Elimination of tariffs on most products
d) Shared rules on important economic decisions
C
In which type of trade bloc do members agree to share common external trade policies?
a) Free trade area
b) Customs union
c) Common market
d) Economic union
B
Which type of trade bloc allows for the free flow of financial capital and people between member countries?
a) Free trade area
b) Customs union
c) Common market
d) Economic union
C
What distinguishes an economic union from a common market?
a) Elimination of tariffs on most products
b) Shared rules on important economic decisions
c) Free flow of financial capital
d) Common external trade policies
B
In a customs union, what additional agreement do members make besides a free trade agreement?
a) Shared rules on important economic decisions
b) Elimination of tariffs on most products
c) Common external trade policies
d) Free flow of financial capital and people
C
Which type of trade bloc involves not only sharing a marketplace but also sharing the same rules about important economic decisions?
a) Free trade area
b) Customs union
c) Common market
d) Economic union
D
_____ determine(s) which products have been produced within a free-trade area and which
products have been produced outside the area and therefore are subject to trade barriers.
a. Trade diversion
b. Trade creation
c. Rules of origin
d. The most favored nation principle
B
Formation of trade blocs can be considered beneficial because it:
a. encourages purchases from higher-cost producers.
b. causes international friction when certain countries are let in the bloc and others are left
out.
c. diverts world trade from low-cost producers to high-cost producers by encouraging too
much trade within blocs.
d. encourages increased total trade by each member country
D
Which of the following features does a customs union have?
a. Free trade among those members which have similar economic policies
b. Common set of external tariffs
c. Free movement of factors of production
d. Harmonization of all economic policies
B
Which of the following is true of an economic union?
a. Free movement of resources, but restricted movement of goods among the member
countries
b. The members have a common set of tariffs among themselves but the external tariff rates
are determined independently
c. Free movement of goods, but restricted movement of resources across the member
countries
d. Harmonization of all economic policies in the member countries
D
Which of the following features does a free trade area necessarily have?
a. Absence of any trade barriers among the member nations
b. Equal tariffs rates
c. Free movement of factors of production across the member nations
d. Harmonization of all economic policies
A
What is the primary concern regarding the formation of trade blocs, as mentioned in the passage?
a) Lowering of domestic prices
b) Increased competition between firms
c) Possible trade diversion effects
d) Creation of a larger market
C
What term is used to describe the phenomenon where imports shift to less efficient foreign producers due to the formation of a trade bloc?
a) Trade creation
b) Welfare loss
c) Trade diversion
d) Economic well-being
C
What potential benefit does joining a trade bloc offer in terms of competition, as mentioned in the text?
a) Increased prices for consumers
b) Higher trade volumes
c) Lower prices for consumers
d) Reduced efficiency in producing goods
C
How might companies benefit from the scale of production within a trade bloc?
a) By facing restrictions in selling to multiple countries
b) By having limited market access
c) By selling only within their own country
d) By being able to sell to a larger market
D
