Exam 8: Regional Trading Arrangements

Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by S_G and D_G. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit. Figure 8.1. Effects of a Customs Union -Consider Figure 8.1. Comparing the trade creation and trade diversion effects, the impact of the Greece/France customs union on the welfare of Greece is:

Members of the European Union find that "trade creation" is fostered when their economies are:

Which country is $\underline { \text { not } }$ a member of the European Union?

The highest stage of economic integration is a monetary union.

The potential for trade diversion is smaller when a custom union's external tariff is lower rather than higher.

U.S. labor unions argued against the North American Free Trade Agreement on the grounds that it would result in U.S. companies relocating in Mexico in order to take advantage of lower wage rates.

Pricing of consumer goods in the former Soviet Union was typically regulated by price ceilings which led to shortages.

Critics of the North American Free Trade Agreement maintained that it would result in manufacturing firms fleeing Mexico's stringent pollution-control policies and relocating in the United States and Canada.

The larger the size and the greater the number of countries in a customs union, the greater will be the trade-diversion effect.

To protect its farmers from foreign competition, the European Union has utilized variable import levies and export subsidies.