1. Study Question #1 Ch 8.
Evaluate the following statement.
True or False: Trade liberalization has assumed two main forms. One involves the reciprocal reduction of trade barriers on a nondiscriminatory basis, as seen in the operation of the World Trade Organization. The other approach involves the establishment by a group of nations of regional trading arrangements among themselves. The European Union and the North American Free Trade Agreement are examples of regional trading arrangements.
Points:
1 / 1
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Explanation:
The General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), represent trade liberalization on a nondiscriminatory basis. Participating nations acknowledge that tariff reductions agreed to by any two nations will be extended to all other members. Trade liberalization on a discriminatory basis occurs when nations form preferential trading arrangements in which tariff reductions are limited to member nations. See section: “Regional Integration versus Multilateralism.”
2. Study Question #2 Ch 8.
Evaluate the following statement.
True or False: Economic integration is a process of eliminating restrictions on international trade, payments, and factor mobility. Economic integration results in the uniting of two or more national economies in a regional trading arrangement.
Points:
1 / 1
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Explanation:
Economic integration refers to the process of eliminating restrictions on international trade, payments, and factor mobility. The stages of economic integration include free trade area, customs union, common market, economic union, and monetary union. See section: “Types of Regional Trading Arrangements.”
3. Study Question #3 Ch 8.
Which of the following describe the static welfare effects of trade creation and trade diversion that result from a customs union? Check all that apply.
Points:
1 / 1
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Explanation:
The movement toward freer trade under a customs union affects world welfare in two opposing ways: a welfare-increasing trade-creation effect and a welfare-reducing trade-diversion effect. The overall consequence of a customs union on the welfare of its members, as well as on the world as a whole, depends on the relative strengths of these two opposing forces. Trade creation occurs when a domestic production of one customs union member is replaced by another member’s lower-cost imports. The welfare of the member countries is increased by trade creation because it leads to increased production specialization according to the principle of comparative advantage. Although a customs union may add to world welfare by way of trade creation, its trade diversion effect generally implies a welfare loss. Trade diversion occurs when imports from a low-cost supplier outside the union are replaced by purchases from a higher-cost supplier within the union, suggesting that world production is reorganized less efficiently. See sections: “Static Effects” and “Dynamic Effects.”
4. Study Question #4 Ch 8.
Evaluate the following statement explaining the reasons so-called common agricultural policy (CAP) has been a controversial issue for the European Union.
True or False: Agricultural efficiencies differ among members of the European Community, and internal disputes have arisen over the level of support provided to member farmers.
Points:
1 / 1
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Explanation:
One major problem confronting the CAP is that agricultural efficiencies differ among members of the European Community. This has led to internal disputes over the level of support provided to member farmers. The export subsidies of the CAP have also been criticized by nonmember developing countries. See section: “Agricultural Policy.”
5. Study Question #5 Ch 8.
Complete the following statement.
Empirical evidence suggests that the EU has realized welfare![]()
benefits in trade creation that have outweighed the![]()
losses from trade diversion.
Points:
1 / 1
Close Explanation
Explanation:
Empirical studies suggest that the static welfare effects of the EU’s formation have generally been favorable for member countries. The benefits associated with trade creation appear to offset the losses associated with trade diversion. See section: “Effects of a Regional Trading Arrangement.”
The following table shows the supply and demand schedules of gloves for Portugal, a small nation that is unable to affect the world price.
|
Price
|
Quantity Supplied
|
Quantity Demanded
|
|---|---|---|
|
(Dollars per pair of gloves)
|
(Pairs of gloves)
|
(Pairs of gloves)
|
| 0 | 0 | 18 |
| 1 | 2 | 16 |
| 2 | 4 | 14 |
| 3 | 6 | 12 |
| 4 | 8 | 10 |
| 5 | 10 | 8 |
| 6 | 12 | 6 |
| 7 | 14 | 4 |
| 8 | 16 | 2 |
| 9 | 18 | 0 |
Use the blue points (circle symbol) to plot Portugal’s demand for gloves curve on the following graph. Use the orange points (square symbol) to plot Portugal’s supply of gloves curve.(Hint: All points need to be plotted.)
Points:
1 / 1
Suppose that Germany and France can supply gloves to Portugal at a price of $2 and $3, respectively.
Use the grey line (star symbol) to plot Germany’s supply curve on the previous graph. Use the tan line (dash symbol) to plot France’s supply curve. Then analyze the graph to complete the following sentence.
With free trade,![]()
Germany exports gloves to Portugal. Portugal produces
4
pairs of gloves, consumes
14
pairs of gloves, and imports
10
pairs of gloves.
Points:
1 / 1
Close Explanation
Explanation:
Portugal will import gloves from Germany at $2 per pair. At this price, Portugal will produce QS=4QS=4 pairs of gloves, consume QD=14QD=14 pairs of gloves, and import QD−QS=14−4=10QD−QS=14−4=10 pairs of gloves, as indicated by the black horizontal segment (QS, QD)(QS, QD) on the following graph.
