Trading blocs and restrictions on trade

Question 1

What is the WTO?

Answer 1

World Trade Organisation

Question 2

When was the WTO formed?

Answer 2

1995

Question 3

Name two key roles of the WTO.

Answer 3

1. framework for settling trade disputes
2. reducing barriers to trade

Question 4

Define a trading bloc.

Answer 4

when a group of countries in a region agrees to cooperate in international trade through free trade area or other organisation

Question 5

Where is the trading bloc ASEAN?

Answer 5

10 countries in SE Asia

Question 6

Where is the trading bloc MERCOSUR?

Answer 6

5 countries in Latin America

Question 7

Where is the trading bloc ASEAN?

Answer 7

10 countries in SE Asia

Question 8

What countries does the trading bloc USMCA cover?

Answer 8

USA, Mexico, Canada

Question 9

What is a free trade area?

Answer 9

group of countries that agrees to trade without barriers between themselves, but having own individual barriers to trade with countries outside the area

Question 10

What is a customs union?

Answer 10

group of countries that agrees to trade without barriers between them and a common tariff barrier with countries outside the union

Question 11

What is trade diversion?

Answer 11

replacement of cheaper imported goods by goods from less efficient gtrading partner within a bloc

Question 12

What is trade creation?

Answer 12

replacement of more expensive domestic production or imports with cheaper output from partner within trading bloc

Question 13

What six things will a common market do?

Answer 13

1. remove barriers to trade among them
2. common barriers to external trade
3. common tax rates
4. common laws on economic activity
5. free movement of factors of production between members
6. common public sector procurement policies

Question 14

What is a monetary union?

Answer 14

where countries share a common currency

Question 15

Define an economic and monetary union.

Answer 15

common market plus common currency (or permanently fixed exchange rates between them) and common monetary policy

Question 16

Is the Single European Market a common market?

Answer 16

no, as there aren’t common tax rates

Question 17

What was the EEC?

Answer 17

European Economic Community, a customs union

Question 18

What were two key economic arguments in favour of UK leaving EU?

Answer 18

1. too many restrictions within EU
2. couldn’t form trade agreements with rest of world

Question 19

What was the EMU?

Answer 19

European Economic and Monetary Union, when exchange rates were permanently fixed between the participating countries

Question 20

When was the Eurozone formed?

Answer 20

2002

Question 21

How many countries were in Eurozone in 2002 and now?

Answer 21

2002: 12
2025: 20

Question 22

Define an optimal currency area.

Answer 22

when a group of countries is better off with a single currency

Question 23

Give four benefits of a single currency area.

Answer 23

1. increased trade
2. increased competition
3. increased economies of scale
4. increased efficiency

Question 24

Why is a single currency area more efficient than different currencies?

Answer 24

reduced transaction costs
reduced uncertainty

Question 25

What are the costs of a single currency area?

Answer 25

* can't use own monetary policy to stabilise economy * economy more affected by those of other countries in the currency area

Question 26

If countries are well integrated with each others, will single currency area be more or less successful?

Answer 26

more

Question 27

Give three reasons why international trade is beneficial to consumers.

Answer 27

1. access to products not produced in home country 2. competition and economies of scale lead to cheaper or higher quality products

Question 28

What is *protectionism*?

Answer 28

measures taken by a country to reduce international trade

Question 29

What is a *sunset industry*?

Answer 29

industry in decline that needs protection for its displaced workers

Question 30

What is an *infant industry*?

Answer 30

industry that needs protection from international competition in short run so can learn to become competitive

Question 31

Give three key arguments for protectionism.

Answer 31

1. ensures non-dependence on others, eg food or weapons if there is a war 2. protects country from high unemployment from declining sectors 3. protects infant industries until they can compete

Question 32

What is *dumping*?

Answer 32

when a country or large firm sells its product in another country below cost price to gain a foothold

Question 33

What is a *tariff?*

Answer 33

tax imposed on imported goods

Question 34

What effect will tariff have in demand?

Answer 34

reduced demand as price is higher

Question 35

What effect will tariff have on domestic supply?

Answer 35

increases as price higher

Question 36

Why are consumers worse off if tariff imposed?

Answer 36

higher prices

Question 37

Does imposing a tariff increase or reduce consumer surplus?

Answer 37

reduces consumer surplus

Question 38

What is a *quota*?

Answer 38

voluntary export constraint, ie agreement by country to limit its exports to another country to a given quantity

Question 39

What are *non-tariff barriers*?

Answer 39

measures imposed by government that inhibit international trade

Question 40

Do consumers and domestic producers win or lose from protectionist policies?

Answer 40

consumers: lose domestic producers: gain

Question 41

What effect does a tariff have on living standards?

Answer 41

deadweight welfare loss so falls