BA 390 Chapter 9

How is a common market different from an economic union?

A common market, has no barriers to trade among member-countries, includes a common external trade policy, and allows factors of production to move freely among members. Labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital among member-countries. An economic union involves the free flow of products and factors of production among member-countries and the adoption of a common external trade policy, but it also requires a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.

Which of the following is the economic level corresponding to the least integration?

A free trade area

The ____ refers to a 1969 agreement among Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union.

Andean Pact

Which of the following is true of regional economic integration?

By creating a single market, the EU aimed to lower the price for goods and services across the bloc.

Which of the following refers to an association of English-speaking Caribbean states that are attempting to establish a customs union?

CARICOM

What are the two impediments to regional economic integration?

Despite the strong economic and political arguments in support, integration has never been easy to achieve or sustain for two main reasons. First, although economic integration aids the majority, it has its costs. While a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose. Moving to a free trade regime involves painful adjustments.

The movement toward regional economic integration has been most successful in ____.

Europe

In a customs union, a common currency is adopted.

False

The emphasis of the European Free Trade Association has been on free trade in consumer goods.

False

Which of the following is true of the Asia-Pacific Economic Cooperation (APEC)?

It was founded in 1990 at the suggestion of Australia.

___ refers to the pact among Argentina, Brazil, Paraguay, and Uruguay that originated in 1988 to establish a free trade are

Mercosur

____ refers to agreements among countries in a geographic region to reduce and ultimately remove tariff and non tariff barriers to the free flow of goods, services, and factors of production between each other.

Regional economic integration

Which of the following is true with regard to regional economic integration?

Regional economic integration is good for consumers because it lowers prices.

Which of the following is true of the Andean Pact during the mid-1980s?

The Pact had failed to achieve the objective of a common external tariff.

Which of the following is a major obstacle to the establishment of the Free Trade Area of the Americas?

The United States wants its southern neighbors to agree to tougher enforcement of intellectual property rights, which they do not want to embrace.

A(n) ___ is defined as a group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies.

free trade area

Which of the following is true of the East African Community (EAC)?

Their program includes cooperation on immigration, road and telecommunication networks, investment, and capital markets.

Define trade creation and trade diversion wit respect to regional economic integration

Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. It may also occur when higher-cost external producers are replaced by lower-cost external producers within the free trade area. Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts.

Economic theories suggest that free trade and investment is a positive-sum game, in which all participating countries stand to gain.

True

To achieve full economic union, the European Union (EU) introduced a common currency, the euro, controlled by a central EU bank.

True