Question

QUESTION 1

1. A benefit of being part of a customs union (relative to not being in the customs union) is,

	a.	being in a customs union makes it more likely that firms can achieve economies of scale
	b.	a customs union tends to have more bargaining power in trade agreements than a country has by itself
	c.	both A and B
	d.	neither A nor B

QUESTION 2

1. A key difference between a customs union and a free trade area is that a customs union has a common trade policy toward non-members and with a free trade area, each member has its own trade policies towards non-members.

True

False

QUESTION 3

1. In a common market,

	a.	there are no trade barriers on substantially all trade among members
	b.	there is legally free movement of labor among members
	c.	there is legally free movement of capital among members
	d.	all of the above

QUESTION 4

1. The European Union is an example of a economic union.

True

False

QUESTION 5

1. Consider a situation where a country joins a customs union. For a given product, it could lose total surplus if it lost more tariff revenue than was captured by consumer surplus.

True

False

QUESTION 6

1. Which of the following is true regarding customs unions (CU)?

	a.	The higher the CU's tariffs against non-members, the less likely it is that trade diversion occurs
	b.	When adding up all products, the trade diversion effect usually outweighs the trade creation effect for a CU
	c.	A country might join a CU so that it can maintain access to the markets of the countries in the CU.
	d.	Other things equal, firms in CU countries tend to face less competition than a similar set of firms in countries not in a trade agreement.

Answer 1

1. c. both A and B
(Being in a customs union, make it easier to achieve economies of scale as size of market is expanded and also a custom unio have more bargaining power)

2. True
(In customs union, there is common external policy which is not there in free trade area)

3. all of the above
(All three options are the features of a common market)

4. True
(Yes, European Union is an example of economic union which is different from customs union)

Note: Post four MCQs at a time.