Exam 8: Regional Trading Arrangements

Suppose that Mexico and Canada form a free-trade area.Mexicans then decrease auto manufacturing and increase imports of autos from Canada,while the Canadians decrease computer production and import more computers from Mexico.This is an example of:

Trade creation would occur if Canada and the United States form a free-trade area,and Canadians then import less steel from the United States while importing more steel from Japan.

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

Trade creation tends to more than offset trade diversion for a home country forming a customs union with partner countries when: (1)the tariff rate in the home country is high prior to the formation of the customs union; (2)there are a large number of countries forming the customs union.

By 1992 the European Union had become a full-fledged:

A main disadvantage of the European Monetary Union is that:

To protect its farmers from imports of agricultural goods,the European Union has implemented tariff rates that vary directly with world prices.

If the United States and Canada abolish all tariffs on each other's goods and implement a common tariff on goods imported from other countries,there occurs a (an):

The European Union protects its agricultural producers from import competition by the use of tariff rates that vary directly with world prices.

Government procurement liberalization permits a country to realize cost savings resulting from the trade effect,competition effect,and economies-of-scale effect.

The implementation of the European Union has:

Which of the following represents the stage where economic integration is least complete?

As new regional trading arrangements are formed,the opportunity cost of remaining outside:

In 1989 Canada and the United States agreed to implement a (an)____ over a ten year period.

Over the long run,the formation of a customs union may yield welfare gains due to economies of scale,greater competition,and stimulus to investment.

Under the European Union's common agricultural policy,a variable import levy equals the:

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.Suppose Greece had formed a customs union with Germany,rather than France.The value of the trade diversion effect would be:

The North American Free-Trade Agreement was most strongly opposed by U.S.:

Figure 8.2.Portugal's Steel Market -Consider Figure 8.2.As a result of a customs union formed with France,Portugal's overall welfare rises by $900.

Assume that the formation of a customs union turns out to include the lowest-cost world producer of the product in question.Which effect could not occur for the participating countries?