Exam 8: Regional Trading Arrangements

A main disadvantage of the European Monetary Union is that:

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 SG and DG. 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:

Negotiating the North American Free Trade Agreement was relatively easy since it involved meshing two large industrial countries with a developing country.

Figure 8.2. Portugal's Steel Market -Consider Figure 8.2.If Portugal forms a customs union with France,the resulting trade-diversion effect equals $400.

Which economic integration scheme is solely intended to abolish trade restrictions among member countries,while setting up common tariffs against nonmembers?

A free-trade area is an association of trading countries whose members agree to remove all trade restrictions among themselves,while each member country imposes identical trade restrictions against nonmember countries.

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:

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

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 SG and DG. 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 to Figure 8.1.Assume Greece levies a per-unit tariff of $20 on imports from both Germany and France. Greece will import:

What factors influence the extent of trade creation and trade diversion?

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

Customs union theory reasons that the formation of a customs union will decrease members' real welfare when the:

Explain the theory of optimum currency areas.

If a customs union includes the low-cost supplier of the world,there would be no adverse trade-diversion effect that would counteract the positive trade-creation effect.

Suppose that the United Kingdom and Italy abolish all tariffs on each other's goods and all restrictions on movements of factors of production between them.They also implement a common protectionist policy toward other countries.This is an example of a (an):

Suppose a communist country agrees to pay for delivery of machinery with goods produced by the machinery.This arrangement refers to:

When products from high-cost suppliers within a customs union replace imports from a low-cost nation that is not a member of the customs union,there exist(s):

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.

As of 2002,members of the European Monetary Union agreed to replace their currencies with the:

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