Andreas Savva 6A
To what extent might a trading bloc be beneficial to its member countries?
A trading bloc consists of a number of countries that have agreed to reduce or eliminate protectionist
barriers between them, such as tariffs and quotas. It is controversial whether a trading bloc is beneficial
to its member countries.
On the one hand, it can be said that trading blocs are indeed beneficial to its members. An initial point
supporting this is that the impact it will have on aspects such as costs and prices as well as competition.
A trading bloc will eliminate or reduce restrictions to trade. This would lead to domestic industries facing
higher levels of competition. Beyond that, if the trading bloc is a monetary union, this would further
result in lower prices for consumers. A single currency makes it easier to compare prices between
different countries, implying there is greater price transparency. This makes it easier for consumers of
the member countries to buy from the cheapest source and forces firms to be price competitive. Also,
TNC’s are less able to price discriminate between countries by charging higher prices in some countries
to earn monopoly profits. There would also be greater efficiency. This is the case as the higher levels of
competition will lead to gains in allocative, productive and dynamic efficiencies which will thereafter
promote economic growth for the countries in the trading bloc. Hence, it is obvious that membership in
a trading bloc is beneficial due to its effects on costs and prices as well as competition. Nonetheless,
these effects could be limited by the fact that increasing competition will lead to unemployment. Many
firms will be unable to survive in the market, especially if they are smaller or inefficient, due to the
increased competition that will occur due to trading bloc membership. Therefore, there would be
greater unemployment as workers are laid off due to the firms that employed them shutting down,
highlighting how these effects could be negative as they lead to unemployment. All in all, lower prices
and costs due to the pressures of increased competition are one positive aspect of joining a trading bloc
but this is limited by the fact that firms would close down and this would cause unemployment.
Furthermore, another positive aspect of trading blocs is that economies of scale would arise. This
occurs as the potential size of the market is larger in a trading bloc than a national market. They will be
achieved over a period of time as companies expand internally or merge with other foreign companies.
This will bring benefits to consumers with other companies. This could also occur as firms try to become
more efficient in order to survive in these markets that now have increased competition and would
consequently lead to economies of scale arising. This will bring benefits to consumers as well since
average costs of production fall and this in turn would cause the prices to fall too as the firm passes
down the cost advantage it has gained. Adding onto that, a trading bloc with a monetary union means
there is even more scope for firms to benefit from economies of scale. A monetary union implies no
exchange rate costs as well as greater price transparency. Thus, this would lead to greater trade
between member states of these kinds of trading blocs. This would also increase cross-border mergers
and takeovers to create larger firms supplying across the trading bloc. This further reduces prices to
consumers. Hence, this indicates how economies of scale is one benefit that member states of trading
blocs could enjoy. Nevertheless, the ability of member states to enjoy this aspect of trading blocs
depends on whether regional monopolies are created. If one firm merges with other firms within the
bloc and a regional monopoly is created, it would not enjoy economies of scale as it has no incentive to
become efficient and it would experience inefficiencies instead of economies of scale. However, if there
are no regional monopolies are created, firms would most likely enjoy economies of scale as they feel
To what extent might a trading bloc be beneficial to its member countries?
A trading bloc consists of a number of countries that have agreed to reduce or eliminate protectionist
barriers between them, such as tariffs and quotas. It is controversial whether a trading bloc is beneficial
to its member countries.
On the one hand, it can be said that trading blocs are indeed beneficial to its members. An initial point
supporting this is that the impact it will have on aspects such as costs and prices as well as competition.
A trading bloc will eliminate or reduce restrictions to trade. This would lead to domestic industries facing
higher levels of competition. Beyond that, if the trading bloc is a monetary union, this would further
result in lower prices for consumers. A single currency makes it easier to compare prices between
different countries, implying there is greater price transparency. This makes it easier for consumers of
the member countries to buy from the cheapest source and forces firms to be price competitive. Also,
TNC’s are less able to price discriminate between countries by charging higher prices in some countries
to earn monopoly profits. There would also be greater efficiency. This is the case as the higher levels of
competition will lead to gains in allocative, productive and dynamic efficiencies which will thereafter
promote economic growth for the countries in the trading bloc. Hence, it is obvious that membership in
a trading bloc is beneficial due to its effects on costs and prices as well as competition. Nonetheless,
these effects could be limited by the fact that increasing competition will lead to unemployment. Many
firms will be unable to survive in the market, especially if they are smaller or inefficient, due to the
increased competition that will occur due to trading bloc membership. Therefore, there would be
greater unemployment as workers are laid off due to the firms that employed them shutting down,
highlighting how these effects could be negative as they lead to unemployment. All in all, lower prices
and costs due to the pressures of increased competition are one positive aspect of joining a trading bloc
but this is limited by the fact that firms would close down and this would cause unemployment.
Furthermore, another positive aspect of trading blocs is that economies of scale would arise. This
occurs as the potential size of the market is larger in a trading bloc than a national market. They will be
achieved over a period of time as companies expand internally or merge with other foreign companies.
This will bring benefits to consumers with other companies. This could also occur as firms try to become
more efficient in order to survive in these markets that now have increased competition and would
consequently lead to economies of scale arising. This will bring benefits to consumers as well since
average costs of production fall and this in turn would cause the prices to fall too as the firm passes
down the cost advantage it has gained. Adding onto that, a trading bloc with a monetary union means
there is even more scope for firms to benefit from economies of scale. A monetary union implies no
exchange rate costs as well as greater price transparency. Thus, this would lead to greater trade
between member states of these kinds of trading blocs. This would also increase cross-border mergers
and takeovers to create larger firms supplying across the trading bloc. This further reduces prices to
consumers. Hence, this indicates how economies of scale is one benefit that member states of trading
blocs could enjoy. Nevertheless, the ability of member states to enjoy this aspect of trading blocs
depends on whether regional monopolies are created. If one firm merges with other firms within the
bloc and a regional monopoly is created, it would not enjoy economies of scale as it has no incentive to
become efficient and it would experience inefficiencies instead of economies of scale. However, if there
are no regional monopolies are created, firms would most likely enjoy economies of scale as they feel
