Trade blocs Flashcards
(21 cards)
What is a free trade area?
A group of countries between which there is free trade in goods and services but member countries are allowed to set their own level of tariffs against non-member countries
What is a customs union?
A group of countries between which there is free trade in products and which imposes a common external tariff on imported goods
What is a single market?
A customs union where both labour and capital have freedom of movement within the area and share the product standards and laws concerning free movement of goods
What is a monetary union?
A group of countries who have a common central bank, currency and monetary policies
What is trade creation?
Switching from purchasing goods from a high cost producer to a low cost producer
What are the advantages and disadvantages of trade creation?
Adv:
- Remove trade barriers and create single markets
- Encourages specialisation
Dis:
- Not as efficient as free trade
What is specialisation?
Nation produces something at lower opportunity cost than other nations
What are the advantages of specialisation?
- Allows members to focus on producing goods where they have cost advantage = efficient resource allocation
What are economies of scale?
Cost advantages gained from increased level of output - increases efficiency and specialisation
What is trade diversion? What is it’s disadvantages?
Occurs when tariff agreements cause imports to shift from low cost countries to higher cost countries
- Less efficient as member states replace more efficient producers
What is the problem with trade blocs?
- Can lead to instability
- Decreased confidence
- Highlighting inefficiency
What are the advantages of a customs union?
- Protect member countries of the customs union from outside competition by making imports more expensive
- Promotes trade among member countries
What are the disadvantages of a customs union?
- One country cannot negotiate seperate deals because of common external tariff
- Possibility of trade diversion
What are the advantages of a single market?
- Can help with labour shortages
- Diminish risk of unemployment and wage inflation
What are the disadvantages of a single market?
- Lack of training
- Rise in working poverty
- Wellbeing issues
- Reduced living standards
- More strain on stretched services
What are the conflicts between WTO and trade blocs?
- Number and size of trade bloc - affect global economy
- Size and extent of protectionism
- Discriminate against poorer counties
- Can reduce isolation of countries
- Depends on degree of intergration
What is pattern of trade?
Composition of a country’s imports and exports, the volume of trade with the rest of the world
How has comparative advantage changed in UK trade?
- UK has comparative advantage in services instead of goods, total exports were financial services
Evaluation: - Deindustrialisation
How have emerging economies changed in UK trade?
- China industrialised in 2013 - accounted for 6.5% of total exports
How have growing trade blocs etc. changed in UK trade?
- Entered EU in 1973 - led to significant increase in total exports out of and into Europe
Evaluation: - Financial crisis in 2007-8, fiscal policies led to fall in exports going to Europe
How have relative exchange rates changed in UK trade?
- 1955, UK imported £15 worth of goods for £5 worth of services
- 2014, UK imported £15 worth of goods for £10 worth of services
