AGB 302 QUIZ 5 WITH ACCURATE
SOLUTIONS
free trade area - ANSWER-all barriers to the trade of goods and services among
member countries are removed. In the theoretically ideal free trade area, no
discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to
distort trade between mem-bers. Each country, however, is allowed to determine its
own trade policies with regard to nonmembers. Thus, for example, the tariffs placed on
the products of nonmember coun-tries may vary from member to member.
customs union - ANSWER-eliminates trade barriers between member countries and
adopts a common external trade policy.
common market - ANSWER-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.
economic union - ANSWER-involves the free flow of products and factors of production
among member countries and the adoption of a com-mon external trade policy, but it
also requires a common currency, harmonization of mem-bers' tax rates, and a common
monetary and fiscal policy.
political union - ANSWER-in which a central political apparatus coordinates the
economic, social, and foreign policy of the member states.
Trade creation - ANSWER-occurs when high-cost domestic producers are replaced by
low-cost pro-ducers 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 - ANSWER-occurs when lower-cost external suppliers are replaced by
higher-cost suppliers within the free trade area.
European Council - ANSWER-represents the interests of member states. It is clearly the
ulti-mate controlling authority within the EU because draft legislation from the
commission can become EU law only if the council agrees. The council is composed of
one representa-tive from the government of each member state. T
SOLUTIONS
free trade area - ANSWER-all barriers to the trade of goods and services among
member countries are removed. In the theoretically ideal free trade area, no
discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to
distort trade between mem-bers. Each country, however, is allowed to determine its
own trade policies with regard to nonmembers. Thus, for example, the tariffs placed on
the products of nonmember coun-tries may vary from member to member.
customs union - ANSWER-eliminates trade barriers between member countries and
adopts a common external trade policy.
common market - ANSWER-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.
economic union - ANSWER-involves the free flow of products and factors of production
among member countries and the adoption of a com-mon external trade policy, but it
also requires a common currency, harmonization of mem-bers' tax rates, and a common
monetary and fiscal policy.
political union - ANSWER-in which a central political apparatus coordinates the
economic, social, and foreign policy of the member states.
Trade creation - ANSWER-occurs when high-cost domestic producers are replaced by
low-cost pro-ducers 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 - ANSWER-occurs when lower-cost external suppliers are replaced by
higher-cost suppliers within the free trade area.
European Council - ANSWER-represents the interests of member states. It is clearly the
ulti-mate controlling authority within the EU because draft legislation from the
commission can become EU law only if the council agrees. The council is composed of
one representa-tive from the government of each member state. T
